Market participants awaiting the conclusion of tomorrow's Fed meeting took a slightly disappointing reading on inflation in stride Tuesday, sending all three major benchmarks to new 52-week intraday highs.
Although the November CPI report essentially matched estimates, underlying stickiness in the shelter and services components suggests the central bank won't pivot to rate cuts as soon as traders had hoped.
The central bank's rate-setting group, the Federal Open Market Committee (FOMC), wraps up the next Fed meeting on Wednesday, and it is widely expected to keep the short-term federal funds rate unchanged at a 22-year high.
What market participants really want to know is when the Fed will pivot to rate cuts – and the latest CPI report suggests they'll have to wait longer than they thought.
Interest rate traders now assign a 42% probability to the Fed enacting its first quarter-point rate cut in March, down from 54% a week ago, according to CME Group's FedWatch Tool. Meanwhile, the odds of a first quarter-point cut in May rose to 50% from 41% a week ago.
"The CPI report sets up an interesting start to 2024," says Stephen Kolano, chief investment officer at Integrated Partners. "A major tug of war in the first part of the year is going to be market expectations for rate cuts early vs Fed posturing on inflation remaining higher than target and needing to keep rates higher for longer. I do think the market may be a bit ahead of itself with any chance of rate cuts as early as March."
Oracle sinks on outlook
In single-stock news, Oracle (ORCL) tumbled 12.5% after the tech giant reported fiscal second-quarter revenue and quarterly revenue guidance that fell short of analysts' estimates late Monday.
The company's downbeat sales forecast for its cloud computing business – which competes with heavyweights Amazon.com's (AMZN) Amazon Web Services and Azure from Microsoft (MSFT), a highly rated Dow Jones stock – continues a trend of slowing top-line growth.
Tuesday's selloff in ORLC stock wiped out about $39 billion in market capitalization. For context, that's more than the entire market value of Electronic Arts (EA).
Elsewhere, shares in Hasbro (HAS) retreated after the toy manufacturer said it's cutting almost a fifth of its workers because of weak sales of toys and games this holiday sales season.
Lastly, Warren Buffett’s Berkshire Hathaway (BRK.B) cut its stake in HP (HPQ) by almost half over the past two months, according to regulatory filings. HP has been a part of the Berkshire Hathaway portfolio since Buffett initiated a stake in early 2022.
As for the major indexes, the Dow Jones Industrial Average added 0.5% to 36,577, the S&P 500 rose 0.5% to 4,643, and the Nasdaq Composite gained 0.7% to 14,533.
