In a remarkable turn of events, the Nasdaq and the S&P 500 surged to record highs on Tuesday, defying early market losses as investors braced for critical inflation data and the U.S. Federal Reserve’s policy meeting. Benchmark Treasury yields continued their downward trend ahead of the much-anticipated Consumer Price Index (CPI) report from the Labor Department.
Apple shares played a pivotal role in propelling the tech-heavy Nasdaq forward, while the blue-chip Dow Jones Industrial Average ended the day in the red. The S&P 500 also reversed its initial losses, ending in positive territory as Federal Reserve policymakers gathered for their two-day policy meeting.
“Investors are playing it safe, with tomorrow’s CPI report expected to show a slight decline,” said Sam Stovall, chief investment strategist at CFRA Research in New York. “But we continue to see all-time highs, and you don’t want to make emotional decisions. CPI could come in weaker than expected, and the Fed could sound optimistic that at least one rate cut could occur before year-end.”
While market participants widely anticipate no change to the Fed funds target rate, the Federal Open Markets Committee (FOMC) is expected to release its Summary of Economic Projections, providing further insight into the central bank’s policy direction.
The data-reliant Federal Reserve will scrutinize the CPI data, due early Wednesday, to determine if inflation is continuing to trend toward the central bank’s 2% annual target. This report follows Friday’s unexpected surge in U.S. wage growth figures.
Meanwhile, geopolitical developments added to market uncertainty. French President Emmanuel Macron’s announcement of a snap election intensified the already tumultuous geopolitical landscape, bolstering the U.S. dollar.
“With Europe leaning to the right, with Modi losing his majority, and Mexico’s election, change is in the air,” noted Stovall. “More uncertainty in Europe will add to the strength of the U.S. dollar.”
In the market wrap-up, the Dow Jones Industrial Average fell by 120.62 points, or 0.31%, to close at 38,747.42. The S&P 500 gained 14.53 points, or 0.27%, to finish at 5,375.32, while the Nasdaq Composite added 151.02 points, or 0.88%, closing at 17,343.55.
European shares extended their losses from the previous session, driven by political uncertainties in France, as investors shifted their focus to the Federal Reserve. The pan-European STOXX 600 index fell 0.93%, while MSCI’s global stock index shed 0.06%. Emerging market stocks dipped by 0.41%, with MSCI’s Asia-Pacific index outside Japan closing 0.64% lower, although Japan’s Nikkei rose by 0.25%.
U.S. Treasury yields decreased after a well-received auction ahead of the CPI data release. The benchmark 10-year notes rose 18/32 in price to yield 4.3981%, down from 4.469% on Monday. Similarly, the 30-year bond price increased by 33/32, yielding 4.5318%, compared to 4.595% the previous day.
The dollar strengthened against a basket of world currencies, hitting a four-week high in anticipation of the CPI inflation report, while the euro weakened amidst political turmoil from far-right gains in European elections and the French snap election. The dollar index rose by 0.09%, with the euro down 0.22% to $1.0739. The Japanese yen weakened slightly to 157.11 per dollar, while sterling traded at $1.274, up 0.08%.
In commodities, crude oil prices edged higher after the Energy Information Administration (EIA) raised its global oil demand forecast. U.S. crude increased by 0.21% to settle at $77.90 per barrel, and Brent crude rose by 0.36% to settle at $81.92 per barrel. Gold prices also reversed earlier losses, ending modestly higher as investors remained focused on the Fed’s economic outlook. Spot gold added 0.2% to reach $2,315.46 per ounce.