S&P 500, Nasdaq at record highs as lukewarm inflation fuels rate-cut bets

NEW YORK: The benchmark S&P 500 and the Nasdaq touched record highs on Wednesday after a lower-than-expected increase in a key inflation metric buttressed hopes that the Federal Reserve will cut interest rates this year.

The blue-chip Dow was set to breach the 40,000-mark for the first time, while the two other major indexes surpassed all-time peaks hit in March. Tepid US consumer prices data for April led traders to raise bets that the Fed will cut its policy rate in September and again in December.

“The first downside surprise in inflation since the turn of the year will be a relief to the niggling concerns that inflation was starting to trend upwards again,” said Seema Shah, chief global strategist at Principal Asset Management.

“It will inevitably be well received by the market, given that it puts 2024 Fed cuts back on the table.” Separately, US retail sales were unexpectedly flat in April as higher gasoline prices pulled expenditure away from other goods, indicating that consumer spending was losing momentum.

At 11:20 a.m. ET, the Dow Jones Industrial Average was up 261.81 points, or 0.66%, at 39,819.92, the S&P 500 was up 44.95 points, or 0.86%, at 5,291.63, and the Nasdaq Composite was up 160.59 points, or 0.97%, at 16,671.77.

Equities built on Tuesday’s gains, when Fed Chair Jerome Powell’s assessment of US growth and inflation reassured investors after hotter-than-expected producer prices for April.

Stocks have rallied so far this year on better-than-expected earnings for the first quarter and expectations that the Fed will be able to cool inflation without damaging growth and eventually transition to cutting interest rates.

Rate-sensitive real estate and technology stocks outpaced other sectoral indexes with a 1.6% gain each.

Most megacap growth and technology stocks also climbed, with Nvidia leading the gains.

Meanwhile, retail investor darling GameStop fell 31.7%, snapping this week’s sharp rally driven by “Roaring Kitty” Keith Gill - a central figure behind the 2021 meme stock frenzy - posting on social media platform X.

Other meme stocks such as AMC Entertainment and Koss Corp dropped 24% each.

Advancing issues outnumbered decliners by a 3.07-to-1 ratio on the NYSE and by a 1.76-to-1 ratio on the Nasdaq.

The S&P index recorded 64 new 52-week highs and no new lows, while the Nasdaq recorded 101 new highs and 47 new lows.