Traders work on the floor of the New York Stock Exchange (NYSE), May 10, 2023.
Brendan McDermid | Reuters
The Nasdaq Composite was higher Wednesday as investors fled to tech stocks after a tamer-than-expected inflation report.
The S&P 500 added 0.2% while the Dow Jones Industrial Average lost 134 points, or 0.4% as shares tied to economic growth declined. The Nasdaq ticked up 0.9%. Tech giant Amazon helped lift the index with a gain of 2.5%
April consumer prices increased 4.9% from a year ago, which was less than the 5% annual increase expected by economists polled by Dow Jones. Month-over-month inflation matched expectations with a 0.4% increase in April.
Treasury yields tumbled following the report, further supporting a stock market which has been worried about higher rates snuffing out economic growth. The yield on 2-Year Treasury fell 12 basis points to 3.899%, while 10-year declined 8 basis points.
“Optimism for the disinflation process to remain in place is high as this report showed shelter prices remain elevated, which just means the lag we are seeing with rent prices should start [to] meaningfully show over the few months,” said Ed Moya, senior market analyst at Oanda. “Inflation should continue to decline over the next few months, but falling back to 2% will be a lot harder given the strength in the labor market.”
Overall market gains were contained as cyclical stocks, which are most closely linked to the economy, traded lower. Shares like Nike and Caterpillar were in the red as some investors reasoned that inflation was slowing because a recession is imminent or the country was already in one.
Airbnb and Twilio fell 11.5% and 16%, respectively, on weak forecasts. Electric vehicle maker Rivian popped 9% on a narrower-than-expected loss. Earnings season continues Wednesday with results from Disney and Robinhood.
But despite the latest sign of inflation increasing at a lower month-over-month clip in April, Wall Street is seemingly cautious on sparking a full-blown rally.
“With each passing month without slowing in core inflation, the chances of getting down to the FOMC’s forecast for the year are receding,” said Stephen Stanley, chief economist at Amherst Pierpont. “So, to me, this is not a dovish result.”
Wall Street also monitored the latest updates on the U.S. debt ceiling as worries mount that an agreement may not be reached before June 1, which is the earliest date the Treasury Department says the U.S. could default. President Joe Biden held a key meeting with congressional leaders after the bell Tuesday, but comments from leadership on both sides of the aisle suggested that little progress was made. Biden and Congressional leaders will meet again on Friday.