Stocks Mixed While Dollar, Treasury Yields Surge After CPI Data: What's Driving Markets Thursday?

Wall Street had a mixed morning session as investors carefully assessed the implications of another strong inflation report, pondering how it might influence future decisions by the Federal Reserve regarding interest rates.

In September, the Consumer Price Index (CPI) surged by 3.7% year-on-year, exceeding the anticipated 3.6%, while core inflation moderated to 4.1% year-on-year, in line with earlier forecasts. On Wednesday, the producer inflation report also saw a higher-than-expected print, and last week the jobs market report revealed much stronger-than-predicted employment growth.

With the Federal Reserve’s meeting scheduled in less than two weeks, investors appear to be firmly leaning toward the expectation that the Fed will hold interest rates steady, with Fed futures pricing indicating an almost 90% likelihood of this outcome.

Bond yields moved higher by about 10 basis points across the Treasury curve, with the policy-sensitive two-year yield jumping above 5% again.

The U.S. dollar was the major beneficiary of the higher-than-expected headline CPI number, with the Dollar Index (DXY) up 0.6%, on track to snap a six-day losing streak.

Cues From Thursday’s Trading:

The S&P 500 Index edged 0.1% up, while the Dow Jones Industrial Average held steady.

Tech stocks outperformed, with the Nasdaq 100 grinding 0.5% higher, while small caps were the heaviest hit, with the Russell 2000 down 1.4%.

US Index Performance On Thursday

Analyst Color:

Although traders are factoring in a Fed pause and likely rate cuts next year, Morgan Stanley’s Lisa Shalett said higher interest rates may not go away. She attributes the conclusion to two factors, namely a resilient economy and a tight labor market keeping inflationary pressure alive — and the likely lukewarm reception to the huge debt issued by the U.S. government.

“With deficit sustainability remaining an issue, the price of money likely stays elevated,” she said.

Shalett expects longer-term government bond yields to normalize somewhere between 4.5% and 5.5%. “Our logic is that the post-COVID U.S. economy looks more like the post-World War II period than the era of secular stagnation, with growth and inflation around 2.5% to 3% driving investors to demand rates in this higher range,” she added.

Thursday’s Trading In Major US Equity ETFs

• The SPDR S&P 500 ETF Trust SPY was 0.2% higher to $437.12.
• The SPDR Dow Jones Industrial Average ETF DIA held flat at $338.22.
• The Invesco QQQ Trust QQQ rose 0.5% to $373, according to Benzinga Pro data.

Looking at S&P 500 sector ETFs:

• The Technology Select Sector SPDR Fund XLK rose 0.94%, outperforming all other sectors.
• The Utilities Select Sector SPDR Fund XLU saw the sharpest drop, down 1.1%.

Latest Economic Data:

Aside from the CPI report, the day also saw jobless claims holding at 209,000 for the week ending October 7, marginally below estimates of 210,000.

According to the U.S. Energy Information Administration Petroleum Status Report, crude oil inventories increased by a significant 10.176 million barrels during the week ending on Oct. 6, marking the largest weekly increase since mid-February 2023.

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Stocks In Focus:

• Broadcom Inc. AVGO rose 4.5%, the most among S&P 100 stocks, with the company on track to mark its seventh straight session of gains.
• Fastenal Co. FAST rose over 8%, the most among S&P 500 stocks, reacting to stronger-than-expected profits last quarter.
• Walgreens Boots Alliance, Inc. WBA rose 6% as revenue beat Street’s estimates despite an earnings miss.
• Ford Motor Co. F fell nearly 1.6% after the United Auto Workers union extended the strike to the company’s Kentucky plant, which is Ford’s biggest plant.
• Domino’s Pizza, Inc. DPZ was flat on a mixed earnings report.
• ViaSat Inc. VSAT rose over 12% as the satellite company announced that it would not need a replacement for ViaSat-3 F1. Additionally, the company has revised its expectations, now anticipating positive free cash flow in the first half of 2025, as opposed to its previous target of the second half of 2025.

Commodities, Bonds, FX, Other Global Equity Markets:

Crude oil held flat, with a barrel of WTI-grade crude trading at $82. The United States Oil Fund ETF USO was 0.5% lower to $75.27.  

Treasury yields were sharply higher, with the 10-year yield up by 10 basis points to 4.66% and the two-year yield up by 9 basis points to 5.07%. The iShares 20+ Year Treasury Bond ETF TLT was 1.4% lower for the day. 

The dollar rose, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.6%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.6% lower to 1.0555.

European equity indices had a negative session. The SPDR DJ Euro STOXX 50 ETF  FEZ fell 0.7%. 

Gold edged 0.1% down to $1,872/oz, while silver fell 0.9% to $21.82. Bitcoin BTC/USD was 0.5% lower to $26,739.

Staff writer Piero Cingari updated this report midday Thursday. 

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