In a stunning display of resilience, the U.S. stock market rallied on Tuesday, defying hotter-than-expected inflation data. The S&P 500 notched its 17th record close of 2024, closing at a staggering 5175.27. This bullish surge was fueled by a growing belief among investors that the Federal Reserve will stick to its plan and cut interest rates later this year.
The Labor Department's latest report revealed a 3.2% year-on-year increase in consumer prices for February. This figure, while concerning, was not as high as some investors had feared. This relative relief, coupled with the expectation of a dovish Federal Reserve, propelled stocks across various sectors higher.
Technology giants led the charge, with chipmakers, software providers, and the "Magnificent Seven" tech stocks experiencing significant gains. Nvidia stole the show with a stellar 7.2% advance, while Oracle's impressive earnings report, boosted by surging demand for artificial intelligence, resulted in a 12% share price jump.
The rally wasn't limited to tech. Big-box retailers and pharmaceutical giants saw their share prices rise, indicating a broad-based market upswing. Additionally, Archer Daniels Midland rose 3.9% after an internal accounting investigation concluded without materially impacting their earnings. 3M also joined the rally, with its stock price surging 5% following the appointment of William Brown as its new CEO.
However, not all companies shared the market's euphoria. Southwest Airlines, citing delayed Boeing aircraft deliveries, announced a reevaluation of its financial guidance. This news sent its stock plummeting a staggering 15%, dragging down American Airlines and United Airlines in its wake. Boeing itself saw its share price decline by 4.3%, and Spirit AeroSystems, the manufacturer of the fuselage involved in the Alaska Airlines blowout, also experienced a slight dip.
The coming days promise a flurry of earnings reports, particularly from Dollar Tree and Dollar General. These reports will offer valuable insights into how low-income Americans are navigating inflationary pressures. Additionally, the Labor Department's producer-price index for February, scheduled for release on Thursday, will shed light on inflation at the manufacturing level.
While Wall Street reveled in rate cut optimism, European markets displayed a more muted response. The Stoxx Europe 600 managed a modest 1% gain, while Japan's Nikkei 225 remained slightly negative at midday Wednesday. As pre-market trading unfolds, S&P 500 futures hint at a potential slight opening dip, suggesting a potential pause in the rally.
The stock market's defiance of inflation data underscores the power of investor sentiment. The unwavering belief in a dovish Federal Reserve and potential interest rate cuts is the driving force behind this bullish rally. However, with earnings season in full swing and key economic data releases on the horizon, the market remains susceptible to volatility. The coming days will be crucial in determining whether the optimism continues or if a more cautious stance emerges.
