Stock Market Ticks Higher on Surprisingly Cool Inflation Data
Stocks are on the rise thanks to positive CPI reports that show inflation is cooler than anticipated.
Quick overview
- U.S. stock futures rose on Friday after unexpected cooling in inflation, with the S&P 500 and Nasdaq Composite gaining slightly.
- The core Consumer Price Index (CPI) increased by 2.6%, lower than the anticipated 3%, indicating a positive trend in inflation.
- Despite the overall market uptick, tech stocks face challenges due to concerns over AI profitability, particularly affecting Nvidia.
- Stock indices remain low for the week, but Friday's trading could change the outlook as investors react to the new inflation data.
U.S. stock futures rose higher on Friday after the Consumer Price Index showed that inflation is cooling at an unexpected rate, and we expect the market to make significant gains for the day.
CPI data was more positive than expected, leading to a slight uptick in stock futures for Friday morning in early trading. The Dow Jones stayed mostly flat, while the S&P 500 added 0.2%, and the Nasdaq Composite gained 0.4% after making significant gains the previous day.
Jobs data finally came in this week as well after being held back by the extended government shutdown. Investors should be aware that the data shown this week on employment may not be up to date, and a better reading will be available in January once the traditional employment data has been collected.
Stocks Expected to Surge on Inflation Reading
Inflation has cooled for core CPI, which covers consumer prices outside of energy and food costs. The increase for this metric over the last 12 months was expected to be about 3%, but it came in at a reading of 2.6%. The wider consumer price index was also lower than expected, reading at 2.7% rather than the anticipated 3.1%.
This means that inflation is lower than expected, cooling at an appreciable rate, and that could lead to a stock market upswing very quickly. With lower inflation and reduced interest rates from the Federal Reserve, the stock market has the opportunity to hit all-time highs in the coming week.
Tech stocks may still be sticky, however, with fears over AI profitability weighing down a number of key stocks this week and in previous weeks. However, Nvidia (NVDA) reclaimed some of its gains with a 1.87% increase on Thursday and then an additional 0.92% increase on Friday in premarket trading. Despite the highest market cap of any company in the world, Nvidia has struggled to keep its stock high through December as investors worry that AI companies are spending more than they are earning.
Stock indices remain low overall for the week, even with a bump Friday morning. The S&P 500 lost about 1% for the week, as did the Nasdaq Composite. That could change by the end of trading for Friday, though. The normal Santa Clause rally that the stock market tends to see this time of year does not appear to be happening. The Dow is slightly up for the moth but down for the week as well. We will see if Friday will end on a high note as CPI data and inflation numbers are processed by investors and analysts.
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