US Stocks Rebound, Treasury Yields Stabilize After CPI Debate – Reuters

By Stephen Culp

NEW YORK – Wall Street reversed an earlier sell-off to close higher on Wednesday, as market prices rebounded from 3-1/2 year lows following a crucial inflation report that solidified expectations for a 25-basis point rate cut by the U.S. Federal Reserve next week.

Investors also analyzed Tuesday night’s U.S. Presidential debate to assess any potential policy shifts leading up to the November election.

All three major U.S. stock indexes made a turnaround, transforming a decline into a rally by mid-afternoon. Technology stocks, especially semiconductor companies, were notable winners, lifting the Nasdaq above the other indexes.

The Labor Department’s Consumer Price Index (CPI) reported an annual inflation rate that fell by 0.4 percentage points to a lower-than-expected 2.5%. Meanwhile, the core measure—which excludes food and energy—showed a monthly increase of 0.3% and an annual rise of 3.2%.

“The inflation report provided both inflation bears and bulls with something to consider,” said Chuck Carlson, CEO of Horizon Investment Services in Hammond, Indiana. “Initially, there was a sentiment today that a 50-basis-point rate cut isn’t likely. Maybe investors are starting to think that this isn’t such a bad outcome.”

Current financial markets are indicating an 85% likelihood that the Fed will reduce its key policy rate by 25 basis points at next week’s policy meeting, with only a 15% chance of a larger 50 basis point cut, as per market analysis.

Participants were notably attentive to the heated U.S. presidential debate, listening for potential policy hints from Vice President Kamala Harris and former President Donald Trump. The candidates clashed over issues like abortion, the economy, immigration, and Trump’s legal challenges.

The Dow Jones Industrial Average rose by 124.75 points, or 0.31%, to reach 40,861.71. The S&P 500 gained 58.6 points, or 1.07%, to settle at 5,554.12, while the Nasdaq Composite added 369.65 points, or 2.17%, to close at 17,395.53.

European stocks ended the session nearly unchanged as investors directed their attention to the European Central Bank and its upcoming rate decision. The pan-European index edged up 0.01%, while the global MSCI gauge of stocks increased by 0.62%.

Emerging market stocks slipped by 0.37%, and the MSCI index for Asia-Pacific shares outside Japan closed down by 0.24%, with Japan’s Nikkei index declining by 1.49%.

Bond yields stabilized after a prior dip, which brought the benchmark rate to its lowest level since early June. The benchmark 10-year notes decreased, with prices falling by 5/32 to yield 3.6609%, compared to 3.644% late on the previous day. The 30-year bond dropped 12/32 in price to yield 3.9743%, up from 3.954% a day earlier.

The dollar saw a minor increase against a basket of world currencies as the inflation report reinforced expectations for a smaller interest rate cut. The dollar index rose by 0.08%, while the euro fell slightly by 0.04% to $1.1015. The Japanese yen appreciated by 0.04% against the dollar at 142.40 per dollar, while the British pound traded at $1.3042, down 0.28% for the day.

Oil prices stabilized after the previous day’s decline, as a drop in inventories coupled with potential supply disruptions from Hurricane Francine countered concerns over weakening global demand. U.S. crude prices climbed by 2.37% to settle at $67.31 per barrel, while Brent crude ended at $70.61 per barrel, reflecting a 2.05% rise.

Gold prices declined as expectations for a larger interest rate cut from the Fed diminished, with gold slipping by 0.2% to $2,512.30 an ounce.