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  • Writer's pictureThe San Juan Daily Star

S&P 500, Nasdaq post closing record highs after CPI, Fed statement

The S&P 500 and Nasdaq posted record closing highs for a third straight day on Wednesday after consumer prices data came in softer than expected but the indexes ended off the day’s highs as the Federal Reserve projected only one interest rate cut this year.

The U.S. central bank, in a statement at the end of its June 11-12 meeting, said it left its policy rate unchanged at 5.25%-5.5%, as expected.

Stocks were choppy following the news, with the S&P 500 and Nasdaq paring gains late and the Dow finishing near flat.

“The Fed is acting like a CEO, sandbagging rate cut expectations down to one or two cuts but likely going to beat them later this year with two or more,” said Gene Goldman, chief investment officer at Cetera Investment Management in Los Angeles.

Stocks rallied as the session opened, after the Labor Department reported that U.S. consumer prices were unexpectedly unchanged in May amid cheaper gasoline.

Oracle shares jumped, lifting the market, after the company forecast double-digit revenue in fiscal 2025 after the bell on Tuesday.

According to preliminary data, the S&P 500 gained 45.62 points, or 0.85%, to end at 5,421.14 points, while the Nasdaq Composite rose 266.44 points, or 1.54%, to 17,609.99. The Dow Jones Industrial Average fell 31.90 points, or 0.08%, to 38,715.52.

After the Consumer Price Index report, traders boosted bets that the Fed will cut rates by September. Traders also added to bets on a second Fed rate cut by December.

Apple’s shares climbed, extending recent gains.

A look at the day ahead in European and global markets from Tom Westbrook

Markets are likely to stay tentative through Europe’s morning hours ahead of a blockbuster session in the U.S., where inflation data is due out in the morning before the Federal Reserve meets to set rates and publish its economic projections.

It’s likely to overshadow final German CPI numbers and Britain’s monthly GDP figures due in the London day.

Economists expect U.S. headline inflation steadied at an annual 3.4% in May. If it’s much hotter than that it will not be well received by equity markets perched at record highs, particularly if it seems to reverse the cheered cooling notched in April.

Markets expect the Fed to leave interest rates on hold and so the focus will be on the economic projections and how Chairman Jerome Powell explains them at his press conference.

On rates, the Fed’s median projection at the March meeting was for three cuts this year. That is likely to change in response to sticky inflation and a strong economy.

Markets currently price about 40 basis points of rate cuts in 2024. So if the median projection were to fall to just one 25 bp cut it would be a blow, while zero would be super hawkish.

A lot may depend on how Powell frames it: Do fewer cuts this year mean more next year, or not? In March, Fed policymakers saw longer-run interest rates between 2.4% and 3.8%, as they had in December. But the median projection ticked up from 2.5% to 2.6%.

In March just one policymaker expected long-run rates below 2.5%, down from five a year earlier. If those projections start creeping up it could derail the bond rally that was already jolted by last week’s surprisingly strong jobs report.

In the Asia day, China’s consumer price index fell 0.1% in May from a month earlier, disappointing forecasts, as price wars exacerbate deflationary pressure in the world’s second-biggest economy.

Japan’s wholesale inflation jumped in May at the fastest annual pace in nine months, as the weak yen added upward pressure on prices. The data complicates the Bank of Japan’s decision, on Friday, on how soon to raise interest rates.

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