US Stocks Climb, Dollar Drops As Falling Inflation Raises Optimism On End of Fed Tightening: What's Driving Markets Today

A lower-than-expected inflation rate reinforced investor risk appetite on Tuesday, pushing the stock market further higher and bolstering convictions that the Federal Reserve's interest rate hikes may have reached their peak.

Traders are now fully pricing in a June pause and have lowered their expectations for a rate hike in July, as indicated by CME Group's FedWatch tool. 

The S&P 500 index reached 13-month highs and is poised for its fourth consecutive session of gains and fifth consecutive positive week.

Cues From Tuesday's Trading:

All major U.S. indices further advanced in Tuesday midday trading, with the S&P 500 index up 0.6% for the session, slightly higher than the 0.5% gains in the Nasdaq 100 and Dow Jones Industrial Average.

Small caps in the Russell 2000 index soared 1.3%, returning to levels seen prior to the collapse of Silicon Valley Bank and Signature Bank in March. 

U.S. Indices’ Performance on Tuesday

Analyst Color:

Despite the buoyancy seen all around, an analyst sounded a cautious note. "While the strong stock market is clearly saying that there’s either a soft landing or no recession, the elements pointing towards a global recession have certainly not gone away," said fund manager Louis Navellier.

"Without the AI-fueled rally in the mega techs, we would probably be looking at a notably more cautious market," he said.

Tuesday's Trading In Major US Equity ETFs: In midday trading on Tuesday, the SPDR S&P 500 ETF Trust SPY was 0.7% higher to $436.81, the SPDR Dow Jones Industrial Average ETF DIA rose 0.5% to $342.91 and the Invesco QQQ Trust QQQ was 0.7% higher to $363.13, according to Benzinga Pro data.

All U.S. equity sectors traded in the green, with cyclicals outperforming defensives and value outperforming growth.

The Materials Select Sector SPDR Fund XLB was the best performer of the day, up 2.2%, followed by the Energy Select Sector SPDR Fund XLE, up 1.4% and the Industrials Select Sector SPDR Fund XLI, up 1.2%.

Latest Economic Data:

The Labor Department's consumer price inflation report for May showed a 4% annual rise in the overall CPI last month, down from the 4.9% recorded in April and below the 4.1% expected. Core inflation, however, came in at 5.3% annually, down from 5.5% in April but slightly higher than the expected 5.2%. 

See also: How To Trade Futures

Stocks In Focus:

• Tesla, Inc. TSLA shares rose moderately; the stock came into the session with 12 straight days of gains.
• Lumen Technologies LUMN soared 20% as the company announced a network interconnection ecosystem that was created with Alphabet, Inc.'s GOOG Google and Microsoft Corp. MSFT.
• GameStop Corp. GME rose 13%, as its executive chair Ryan Cohen scooped up $10 million in GameStop shares in the wake of a selloff fueled by the gaming retailer's latest earnings report, a recent filing shows.
• Methode Electronics, Inc. MEI plummeted 18% after the company said it expects lower sales and earnings in fiscal 2024.
• Freeport McMoRan, Inc. FCX was the S&P 500's best daily performer, rising nearly 6%, as copper and other base metals rallied after China's central bank cut its short-term lending rate to stimulate its lackluster economic recovery.
• Commodities, Bonds, Other Global Equity Markets:

Crude oil rose 3.2%, with a barrel of WTI-grade crude rising to $69.60. The United States Oil Fund ETF USO was 3.6% higher to $62.40 per share.  

Treasury yields rose, with the 10-year yield up by 4 basis points to 3.78% and the two-year yield up 4 basis points to 4.62%. The iShares 20+ Year Treasury Bond ETF TLT was 0.6% lower for the day. 

The dollar fell, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, down 0.4%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.4% higher to 1.08.

European equity indices rose. The SPDR DJ Euro STOXX 50 Etf  FEZ rose 0.9%. 

Gold fell 0.6% to $1,945/oz. The SPDR Gold Trust GLD was 0.5% lower to $180. Silver dipped 1.4% to $23.71, with the iShares Silver Trust SLV down 1.4% to $21.78. Bitcoin BTC/USD fell 0.1% to $25,870.

Staff writer Piero Cingari updated this report midday Tuesday.

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