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Real-estate stocks in the S&P 500 climbed 1.7 per cent, while stocks of electricity companies and other utilities rose 1.4 per cent. The dividends they pay look better to investors when bonds are paying less in interest.
The optimism came from a report showing that the prices US consumers had to pay for petrol, car insurance and everything else in April were 3.4 per cent higher overall than a year earlier. While painful, it’s not as bad as March’s inflation rate of 3.5 per cent.
Perhaps more importantly, the slowdown was a relief after reports for the consumer price index, or CPI, earlier this year had consistently come in worse than expected. That string of disappointing data had washed out forecasts for the Federal Reserve to lower its main interest rate soon.
The federal funds rate is sitting at its highest level in more than two decades, and a cut would goose investment prices and remove some of the downward pressure on the economy.
“There was a lot lying on today’s CPI print to prove that disinflation was simply delayed these last three months and not derailed,” according to Alexandra Wilson-Elizondo, co-chief investment officer of the multi-asset solutions business in Goldman Sachs Asset Management.
A separate report showed no growth in spending at US retailers in April from March. It was a weaker showing than the 0.4 per cent growth economists expected.
Slowing growth in retail sales could be seen as a positive for markets because it could slow price inflation. But a stalling out also raises worries about cracks forming in consumer spending, which has been one of the main pillars keeping the US economy out of a recession. Pressure has grown particularly high on lower-income households.
That could threaten one of the main hopes that’s taken the US stock market toward its records: That the Fed can pull off the balancing act of slowing the economy enough through high interest rates to stamp out high inflation but not so much that it causes a bad recession.
On Wall Street, Petco Health + Wellness helped lead the market after soaring 27.9 per cent. It named Glenn Murphy, who is CEO of investment firm FIS Holdings, as its executive chairman.
On the losing end were GameStop and AMC Entertainment, as momentum reversed following their jaw-dropping starts to the week. GameStop fell 18.9 per cent, though it’s still up 126.5 per cent for the week so far.
AMC Entertainment sank 20 per cent after it said it will issue nearly 23.3 million shares of its stock to wipe out $US163.9 million in debt.
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In the bond market, the yield on the 10-year Treasury eased to 4.34 per cent from 4.45 per cent late on Tuesday. The two-year yield, which moves more closely with expectation for Fed action, sank to 4.72 per cent to from 4.82 per cent.
Traders are now forecasting a nearly 95 per cent probability that the Fed cuts its main interest rate at least once this year, according to data from CME Group. That’s up from just below 90 per cent a day before.
In other international markets, Shanghai’s fell 0.8 per cent after China’s central bank left a key lending rate unchanged. Indexes were mixed elsewhere in Asia and modestly higher in Europe.
AP
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