The market was indecisive today with the Dow Jones Industrial Average and the S&P 500 largely flat through noon after erasing earlier gains. Meanwhile, the tech-heavy Nasdaq Composite managed to eke out a 0.4% return, building on yesterday’s momentum. The market’s mood was tempered by hotter-than-expected wholesale inflation data, as traders also awaited Federal Reserve minutes for clues on the interest rate trajectory.
U.S. wholesale prices in September rose at their fastest pace since April, with the producer price index climbing 2.2% year-over-year, outpacing the expected 1.6% gain. On a month-to-month basis, the index rose 0.5% from August, a slight deceleration from the 0.7% increase seen from July to August. Core inflation, which excludes volatile food and energy prices, rose 2.7% year-over-year and 0.3% from August. These numbers are closely watched by the Fed and economists as indicators of future inflation trends.
The data showed that wholesale energy prices surged 3.3% from August to September, while food prices rose 0.9% after a 0.5% decline from July to August. This uptick in wholesale prices, particularly in goods, came as a surprise to economists and raised questions about whether inflation will continue to ease as these producer costs eventually trickle down to consumers.
Rubeela Farooqi, chief U.S. economist at High Frequency Economics, commented, “Last month’s higher producer prices likely do not change the outlook for Fed policy. Our baseline remains that rates are at a peak. For the Fed, geopolitical developments will be an additional risk factor which will likely keep policymakers proceeding cautiously going forward.”
The Federal Reserve has been aggressive in its approach to tackling inflation, raising its benchmark rate 11 times since March 2022. Despite this, the market is increasingly expecting the Fed to hold off on further rate hikes for the rest of the year. This sentiment was fueled by comments from two Fed officials earlier this week, suggesting that the central bank might leave its key rate unchanged at its next meeting. These comments sparked a rally in both bonds and stocks.
Treasury yields continued to pull back from their 16-year highs, with the benchmark 10-year yield trading near 4.61%, down from last week’s peak above 4.88%. This retreat in yields comes despite the absence of weak economic data or a compelling reason for yields to continue falling.
Oil prices also eased, dropping 2.8% for crude oil futures and 2.3% for Brent crude futures. This decline relieved some pressure on the market, as the impact on supply from the ongoing Middle East conflict appeared to be contained.
In the corporate arena, Exxon Mobil shares slid 4% after the company agreed to acquire shale rival Pioneer Natural Resources in an all-stock deal valued at nearly $60 billion. On the flip side, Birkenstock is set to make its trading debut on the NYSE today, with its IPO priced at $46 a share, valuing the German sandal maker at $8.64 billion.
Looking ahead, traders are keenly awaiting the consumer price index data set to be released tomorrow. A stronger-than-expected reading could compel the Fed to reconsider its stance on interest rates. Minutes from the Fed’s last meeting, due later today, are also expected to offer more insight into the central bank’s future policy moves.
