Investors found relief on Tuesday as December’s producer prices came in below expectations, alleviating inflation concerns that have threatened to derail the Federal Reserve’s plans for potential policy easing during 2025.
Major U.S. indices moved higher in early trading as Treasury yields stalled, giving traders space to reassess interest rate expectations ahead of Wednesday’s pivotal consumer inflation report.
Softer Producer Inflation Provides Market Oxygen
In December 2024, the Producer Price Index rose 3.3% year-over-year, slightly below forecasts of 3.4%. Core producer inflation, which excludes volatile food and energy prices, remained steady at 3.5% annually, but monthly core prices flattened, reflecting softer price pressures across underlying components.
Blue-chip stocks, however, lagged as energy shares took a breather following a multi-day rally.
Still, Wall Street's broader gains may remain capped as investors await further clarity from Wednesday’s consumer price index report. Economists predict CPI to rise from 2.7% to 2.9% year-over-year in December, while core inflation is forecast to hold steady at 3.3%.
Treasury yields held steady, signaling that traders are pausing adjustments to their interest rate cut expectations.
According to the CME FedWatch tool, the probability of a 25-basis-point rate cut rose slightly to 60% by July 2025 and 70% by October.
Tesla Leads Discretionary Stocks Higher
Consumer discretionary stocks were among the day's top performers, driven by a 3% rally in Tesla Inc. (NASDAQ:TSLA).
Shares of the EV giant climbed after a bullish note from Morgan Stanley, which raised Tesla's price target from $400 to $430 and projected a best-case scenario of $800. The firm cited the company's growing potential in autonomous rideshare and robotaxi services as key drivers for long-term growth.
The Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY) advanced 1%, reflecting broad strength across the sector.
Tech and Semiconductors Rebound
Tech stocks rebounded after several days of volatility, with semiconductors leading the way.
Chinese Stocks Surge On Policy Support
Chinese equities rallied as news of government intervention boosted investor sentiment.
The China Securities Regulatory Commission announced plans to collaborate with the People's Bank of China to build a market stabilization mechanism, signaling support for the country's struggling markets.
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