The US stock market is poised for a potential dip on Wednesday, as investors brace for the release of the crucial Consumer Price Index (CPI) data, a key indicator of inflation. This follows a record-breaking week for the major indices, driven by optimism surrounding the Republican sweep in the midterm elections and the Federal Reserve’s widely anticipated 25 basis point rate cut. However, the euphoria has been tempered somewhat by profit-taking and a sense of caution among investors, leading to a slight pullback in recent trading.
Futures for all three major indices – Nasdaq, S&P 500, and Dow Jones – are trading slightly lower in the pre-market session, suggesting a negative opening. The Dow Jones, which kicked off the week with a record high of 44,000, has seen a slight retreat, highlighting the shift in sentiment.
The upcoming CPI report is expected to provide valuable insights into the trajectory of inflation and guide the Federal Reserve’s future monetary policy decisions. This data point is particularly crucial for investors, as it could signal whether the Fed will continue on its path of easing interest rates or make adjustments to its approach.
While the Fed has indicated its willingness to cut rates further without concerns about inflation surging, some analysts remain cautious. BlackRock Investment Institute, for instance, highlighted the importance of the CPI report in determining whether inflation will continue to decline towards the Fed’s 2% target. While short-term inflation has been decreasing, the firm pointed to recent services PCE data that suggests inflation may settle above 2% in the medium term.
Meanwhile, the markets are also digesting other economic data. U.S. consumer inflation expectations for the year ahead eased to 2.9% in October, down from 3% in the previous four months. This suggests a degree of confidence among consumers that inflation will remain under control. The RealClearMarkets/TIPP Economic Optimism Index, meanwhile, rose 13.4% in November to a reading of 53.2, marking the highest level in over three years.
While the broader market is showing signs of caution, certain sectors are bucking the trend. Information technology and communication services stocks closed higher on Tuesday, outperforming the overall market. Conversely, materials, health care, and real estate stocks were the biggest losers.
As investors await the release of the CPI data, all eyes are on the upcoming economic calendar. Along with the CPI report, scheduled for 8:30 a.m. ET, other key events include speeches by New York Fed President John Williams and Dallas Fed President Lorie Logan. The monthly U.S. federal budget will also be released at 2 p.m. ET.
In pre-market trading, Rivian Automotive Inc. (RIVN) shares surged nearly 13% after the company announced the launch of its joint venture with Volkswagen Group (VWAGY), with the deal value increasing from $5 billion to $5.8 billion. Tesla Inc. (TSLA) shares rose over 2.5% following the appointment of CEO Elon Musk to the Department of Government Efficiency, or DOGE. Spirit Airlines Inc. (SAVE) stock plunged over 65% as the company inches closer to bankruptcy and failed to file its September quarter earnings. MicroStrategy Inc. (MSTR) and Robinhood Markets Inc. (HOOD) shares continued their upward trajectory as Bitcoin (BTC/USD) neared the $90,000 mark.
Investors are also awaiting earnings results from several companies, including CyberArk Software Ltd. (CYBR), Cisco Systems, Inc. (CSCO), and Beazer Homes USA, Inc. (BZH).
In the commodity markets, crude oil futures rose by 0.81% in the early New York session, hovering around $68.67 per barrel. The 10-year Treasury note yield eased slightly to 4.418%. Asian markets mostly closed in the red on Wednesday, while European markets were trading higher in early trading.
