Stock Market Update: Encouraging Inflation Data Boosts Most U.S. Stocks

On Tuesday, most U.S. stocks experienced gains following a positive update on inflation, although some declines in major stocks like Eli Lilly kept market indexes from moving higher.

The S&P 500 saw an increase of 0.1%, buoyed by the fact that three out of four stocks in the index made gains. The Dow Jones Industrial Average climbed 221 points, or 0.5%, while the Nasdaq composite experienced a slight dip of 0.2%.

This upward trend was largely influenced by a report indicating that inflation at the wholesale level in the U.S. was lower than economists had anticipated for the previous month. This news served as an encouraging signal ahead of an upcoming report expected on Wednesday, which will shed light on consumer inflation in areas such as gasoline, groceries, and vehicle sales.

However, the persistent high inflation rates, coupled with stronger-than-expected economic updates, have led to a prolonged period of stagnation in Wall Street, keeping it far from the historic highs seen last year. Investors are concerned that this strong data may lead the Federal Reserve to implement fewer interest rate cuts this year.

The Federal Reserve has indicated that it is likely to only reduce rates twice in 2025, down from a previous estimate of four cuts. There is rising speculation about the possibility that there may be no rate cuts this year.

In response to these developments, Treasury yields have surged in the bond market, increasing pressure on stock prices. However, following the recent update on wholesale inflation, yields have moderated slightly.

The yield on the 10-year Treasury remained steady at 4.78%, where it stood late Monday. This is a significant increase from below 3.65% in September. Meanwhile, the yield on the two-year Treasury, which closely follows expectations for Federal actions, decreased to 4.36% from 4.39%.

Among individual stocks, KB Home rose by 4.8% after the company reported earnings that exceeded analysts' forecasts. Despite the rising Treasury yields making mortgages costlier, CEO Jeffrey Mezger stated that buyers are still keen on homeownership, and market conditions have improved compared to last year. He attributed faster construction times to the company’s ability to deliver more homes during the quarter ending in November.

In corporate news, H&E Equipment Services saw its shares more than double, exceeding $90 each, after United Rentals announced its acquisition of the company for $92 per share in cash. This deal values H&E at $4.8 billion, including approximately $1.4 billion in net debt. United Rentals also saw its stock rise by 5.9%.

Throughout the day, indexes fluctuated between gains and losses largely due to declines in several leading technology stocks. Notably, Nvidia’s stock dropped by 1.1%, being the second-largest detractor on the S&P 500.

The most significant drag came from Eli Lilly, whose stock fell by 6.6% after the company projected a weaker revenue report for the last quarter of 2024 than previously expected. CEO David Ricks pointed out that the company's revenue growth of 45% for its Mounjaro diabetes treatment and Zepbound obesity injections was not as robust as anticipated.

Another company facing challenges was Signet Jewelers, whose stock plummeted by 21.7%. The jewelry retailer reported that sales during the crucial holiday shopping period were below expectations, as shoppers leaned more towards affordable fashion gifts amid ongoing competition.

Looking ahead, several major financial institutions, including JPMorgan Chase and Wells Fargo, are scheduled to report their earnings on Wednesday, marking the beginning of earnings season. These reports are usually closely monitored, and this time around, companies may face extra pressure to deliver impactful results.

If Treasury yields maintain their upward trajectory, it will necessitate either a decline in stock prices or increased profit growth from companies to compensate for the rising costs.

Overall, on Tuesday, the S&P 500 rose by 6.69 points to settle at 5,842.91. The Dow Jones Industrial Average climbed 221.16 points to finish at 42,518.28, while the Nasdaq composite decreased by 43.71 points to close at 19,044.39.

Internationally, stock markets showed positive movement across much of Europe and Asia, with a few exceptions. Japan's Nikkei 225 index fell by 1.8% following a holiday on Monday, while stocks in China fared much better, with increases of 1.8% in Hong Kong and 2.5% in Shanghai.

Additionally, crude oil prices observed a decline, reversing some of the strong gains seen in recent weeks that had intensified inflationary pressures. Benchmark U.S. crude dropped by 1.7% to $77.50 per barrel, while Brent crude, the international standard, decreased by 1.3% to $79.92 per barrel.

Stocks, Inflation, Market