Goldman, Citi pop as bank stocks outperform
Bank stocks are outperforming on Wednesday, even as the July CPI report appeared to spark a move lower for interest rates.
Shares of Goldman Sachs and Citigroup have gained more than 3% each. JPMorgan Chase and Wells Fargo have popped more than 2% apiece.
Smaller banks are also holding their own, with the SPDR S&P Regional Banking ETF gaining 2.6%.
This morning, Piper Sandler listed small banks that could be smart bets during a recession. Check out the list on CNBC Pro.
—Jesse Pound
Roblox, Sweetgreen trim losses
The broad market rally is helping to stem the losses for two stocks with disappointing quarterly reports.
Shares of Roblox and Sweetgreen were down 5% and 4.6%, respectively, in midday trading. Both stocks were down more than 10% in extended trading on Tuesday evening.
—Jesse Pound
Volatility index falls below 20
The Cboe Volatility Index dropped below 20 on Wednesday and is now trading at its lowest levels since April.
The index is based on the expected volatility implied by the options market. It is sometimes called Wall Street’s “fear gauge,” and tends to spike when investors are more uncertain about the future.
— Jesse Pound
CPI data shows promise but ‘one month doesn’t make a trend,’ Independent Advisor Alliance’s Zaccarelli says
While one month of slowing price increases signals that inflation is moving in the right direction, more data is needed to show a continuous trend, said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance.
“One month doesn’t make a trend, but at least headline is coming down and core stopped going up,” he wrote. “If we see future months’ data showing a decrease in inflation, then it will help markets see the end of the tunnel in terms of rate hikes.”
— Samantha Subin
Market taking comfort in latest CPI reading, Commonwealth’s Brian Price says
Commonwealth Financial Network’s Brian Price said the market is taking this latest CPI report as a welcome sign that inflation may be peaking.
“The market seems to be taking comfort in the fact that we’re seemingly past peak inflation and we should continue to see declines in the second half of the year,” the firm’s head of investment management said. “It looks like the odds of another 75 basis point hike by the Fed have dipped significantly in the wake of this report and we could only see a 50 basis point hike at the next meeting. If energy prices continue to fall, then I expect that we’ll see inflationary data coming down in future months.”
“This dynamic should support risk assets and we will likely see long term interest rates fall as well,” he added.
—Fred Imbert
S&P 500 rises to the highest since May
The S&P 500’s surge Wednesday took it to levels not seen since early May as the comeback rally reaches new heights. The benchmark is now up 15% from its mid-June low as investors bet inflation is peaking and the Federal Reserve will eventually slow its intensity of rate hikes.
After tumbling into a bear market, the S&P 500 has now cut its losses for 2022 to 12%. The index is 13% off its all-time high reached in January.
Stocks open sharply higher
The Dow opened higher by more than 400 points, while the Nasdaq Composite jumped more than 2%.
The rally is broad, with only energy stocks struggling.
-Jesse Pound
Treasury yields tumble after CPI report
Treasury yields dropped on Wednesday as a highly anticipated inflation figure came in flat compared with the previous month.
The yield on the benchmark 10-year Treasury note tumbled 9 basis points to 2.67%, hitting the lowest level in a week. The yield on the 30-year Treasury bond fell 6 basis points to 2.96%.
The inflation report suggested to some that price pressures might have peaked, which could spark speculations that the Federal Reserve could conduct a smaller interest-rate hike next month.
“Overall, incremental confirmation that the Fed’s efforts to combat consumer price increases have been successful,” Ian Lyngen, BMO’s head of U.S. rates, said in a note. “The combination of NFP and CPI for July leave the 75 bp vs. 50 bp Sept hike debate alive and well.”
— Yun Li
Cramer says we’ve hit peak inflation
Wednesday’s July CPI report, which showed price increases slow, is a sign that the economy has hit peak inflation, according to Jim Cramer.
“We obviously had peak inflation,” he told CNBC’s “Squawk Box” on Wednesday, noting that energy, travel and prices at the pump have continued to come down.
Cramer added that the recent hike from the Federal Reserve is likely the central bank’s best attempt to get surging prices under control.
Moving ahead, Cramer expects the central bank to hike rates again come September but likely by 50 basis points compared to the long-anticipated 75 basis point move.
“I think what matters here is that these are the numbers that Powell wanted,” he said.
— Samantha Subin
Risk on move in tech in the premarket
The CPI report showing slowing inflation gave investors the green light to buy technology shares beaten-up this year on concern over the impact of rising interest rates on growth companies.
Tesla was higher by 4% in premarket trading. Amazon and Meta gained 3%.
Even chip stocks, besieged by negative earnings warnings in the sector this week, were rebounding in early trading. Nvidia and AMD were up more than 3% apiece.
—John Melloy
Another big Fed hike is not off the table, Swonk says
Good news in the CPI report appears to have lowered the market odds of a three-quarters-of-a-percentage-point Fed hike in September, but some still believe the central bank will remain aggressive.
“I still think the Federal Reserve is on for 75 basis points….They need to see much more improvement than this sustained, especially in the core. We could be looking at slower moves by the end of the year,” said Diane Swonk , chief economist KPMG.
Core CPI, which the Fed traditionally focuses on, is still well above the central bank’s 2% target.
—Jesse Pound, Patti Domm
CPI is flat for the month and stocks like it
Stock futures ripped higher and bond yields tumbled after the much-anticipated consumer prices report for July was much better than feared.
Prices rose 8.5% in July on an annual basis, a slowing pace from June. Month to month, inflation was flat as energy prices broadly declined 4.6% and gasoline fell 7.7%. That offset a 1.1% monthly gain in food prices and a 0.5% increase in shelter costs. Economists surveyed by Dow Jones were expecting headline CPI to increase 8.7% on an annual basis and 0.2% monthly.
Excluding volatile food and energy prices, so-called core CPI rose 5.9% annually and 0.3% monthly, compared to respective estimates of 6.1% and 0.5%.
—John Melloy, Jeff Cox
Futures jump after CPI report
Investors cheered a cooler-than-expected inflation report, with Dow futures jumping 400 points. The Nasdaq 100 futures gained more than 2%, which means the tech-heavy Nasdaq Composite could erase its losses from Tuesday when the market options.
In the bond market, Treasury yields fell after the report.
-Jesse Pound
Futures higher ahead of CPI report
Shortly before the CPI report, futures have built on their morning gains.
Futures for the Dow Jones Industrial Average rose 101 points, or 0.3%. S&P 500 futures gained 0.4% and Nasdaq 100 futures climbed 0.5%.
-Jesse Pound
Inverted yield curve will ‘flinch,’ Novogratz says
Galaxy Digital CEO Michael Novogratz said on “Squawk Box” that he was watching the Treasury yield curve as a key indicator of what could happen next for markets.
“The most fascinating thing is the 2-10s steepener,” Novogratz said. “The curve has flattened to negative-50 basis points between 2s and 10s. You go back [50] years, only one time in the 70s did it get through that. At one point, that’s going to flinch, and I think that will be the big inflection point.”
A basis point is equal to 0.01 percentage points.
When the 2-year Treasury yield trades above the 10-year yield, many on Wall Street see that as strong recession indicator. On Wednesday, the the 2-year yield was trading at 3.278%, while the 10-year was at 2.803%.
Novogratz said that he believes investors are overconfident in a future pivot from the Federal Reserve, which could be one of the reasons for long-term rates trading below short-term rates.
—Jesse Pound
Goldman Sachs cuts gold forecast
Goldman Sachs has cut its gold forecast, saying it overestimated how much recession fears would drive prices.
The firm now sees gold averaging $1850/toz over the next three months, before increasing slightly to $1,950/toz for the remainder of the year.
The new forecasts are down from a prior 12-month outlook of $2,500/toz. The firm said it came to that target after looking at how gold traded over the last 20 years, noting that recession risks around tightening cycles was previously a more important driver than real rates.
“While we expected nominal rates to increase on the back of Fed hikes we did not expect inflation expectations to fall so much after failure of the transitory narrative and high persistent inflation surprises,” Goldman wrote in a note to clients.
“The main conclusion is that in the current environment of tightening policy and persistent recession concerns the tactical direction of gold will be determined by shifts in Fed priority function between inflation fight and growth support,” the firm added.
U.S. gold futures traded at $1,811.40/oz on Wednesday.
— Pippa Stevens
Market may be overbought ahead of CPI
The recent market rally could put stocks at risk of a pullback from Wednesday’s CPI reading, according to BTIG technical strategist Jonathan Krinsky.
The strategist said in a note to clients on Tuesday evening that stocks have made some counterintuitive moves after CPI reports this year, with positioning ahead of the report seeming to be a key factor in how the market reacts.
“At the end of the day nobody knows what the number will be or how the market will react to that number, but from our perspective things are coming in pretty overbought which leaves room…
Read More: Dow jumps 400 points, Nasdaq surges 2% as investors cheer lighter-than-expected inflation