Inflation data puts a damper on the S&P 500, Dow, and Nasdaq ahead of next week’s Fed meeting
Despite the ominous date of Friday the 13th, U.S. stocks remained stable as investors awaited the Federal Reserve’s meeting on Wednesday.
The S&P 500 index experienced a slight drop of 0.16 points, remaining nearly unchanged and finishing at 6,051.09. For the week, it fell 0.6%, breaking a three-week winning streak.
Meanwhile, the Dow Jones Industrial Average saw a decline of 0.2% or 86 points, closing at 43,828.06, marking its seventh consecutive day of losses, the longest losing streak since 2020. It ended the week down 1.8%, the largest weekly drop since October and its second consecutive weekly loss.
The Nasdaq, on the other hand, saw a slight gain of 0.12%, up 23.88 points, closing at 19,926.72, although it was still below its recent peak of 20,061.65 reached earlier in the week. For the week, the Nasdaq increased by 0.3%.
Next Wednesday marks the final Federal Reserve policy meeting of the year. According to the CME Fed Watch tool, there is a 97% probability that the Fed will reduce the short-term benchmark federal funds rate by a quarter-point, bringing it down to a range of 4.25% to 4.5%. However, the outlook for rates in the upcoming year is less clear.
Current expectations suggest a pause in rate changes in January, as noted by the CME Fed Watch tool, after recent inflation data that exceeded expectations raised some caution among economists.
KPMG’s chief economist Diane Swonk commented, “Inflation improvements seem to have stagnated,” based on her report.
Current inflation trends
Consumer inflation rose for the second consecutive month, increasing by 2.7% in November, representing the largest increase since July. Core inflation, which excludes the more volatile sectors of food and energy, remained unchanged at 3.3%. Both measures continue to exceed the Fed’s target of 2% inflation.
Additional concerns regarding inflation are apparent in wholesale pricing, which reflects costs incurred by businesses. Last month, wholesale prices saw an annual rise of 3%, while excluding food and energy saw a 3.5% increase. Both outcomes are the highest since February 2023.
Government bond yields climb
U.S. government bond yields increased for the fifth consecutive day, reaching their highest levels in recent weeks as inflation remains a concern for the Federal Reserve, according to economists.
The 10-year Treasury yield rose to above 4.4%, while the 2-year yield stood at 4.247% as of Friday.
Tech giants remain unaffected
The largest tech companies, including Apple, Nvidia, Microsoft, Amazon, Facebook parent Meta, Google parent Alphabet, Broadcom, and Tesla, have shown resilience in the face of inflation concerns.
Despite mixed performance on Friday, companies like Alphabet, Amazon, Apple, Broadcom, and Tesla achieved record highs this week. Tesla’s peak earlier in the week was its first record close in over three years, attributed to CEO Elon Musk’s positive rapport with President-elect Donald Trump. Since the election, Tesla shares have climbed approximately 65%.
Broadcom’s stock surged more than 24% on Friday, pushing the company’s market value to a staggering trillion dollars following its prediction of a significant increase in demand for chips that power artificial intelligence (AI).
CEO Hock Tan noted that AI could generate a $60 billion to $90 billion revenue opportunity for Broadcom by 2027, which is more than quadruple the current market size. The company also projected first-quarter revenue to exceed expectations revealed late Thursday.
