Stock market today: S&P 500, Nasdaq rip higher as key inflation data comes in cool
08/13/2024 22:20
Investors are anxious for several economic datapoints this week, starting with inflation.
Investors more confident in soft landing as Fed rate cut expectations rise: BofA survey
Investors are increasingly confident the global economy will achieve a "soft landing," where inflation subsides but overall economic activity doesn't significantly deteriorate amid higher interest rates.
In Bank of America's August Global Fund Manager Survey, released on Wednesday, 76% of respondents said a soft landing is the most likely outcome for the global economy in the next 12 months. This marked the highest percentage of respondents projecting such an outcome dating back to May 2023.
Bank of America chief investment strategist Michael Hartnett, who conducts the survey, noted that the bet for a soft landing conviction is "driven by expectations for lower interest rates." In the latest survey, 93% of investors said they see lower short-term rates in the next 12 months, marking the highest level of confidence in lower rates in the past 24 years.
Additionally, 60% of investors expect four or more interest rate cuts this year. This falls in line with current market pricing, which projects four interest rate cuts in 2024, per Bloomberg data.
The 585 respondents were surveyed between Aug. 2 and Aug. 8, meaning the survey was conducted after a weak July jobs report that increased recession fears and sent markets into a tailspin. But largely, how investors' assessment of the economic narrative fell in line with what many economists have argued: The soft landing is still in sight, but Fed rate cuts are needed to get there.
In a weekly note to clients, Morgan Stanley chief global economist Seth Carpenter said he sees the Federal Reserve cutting interest rates by 75 basis points this year.
"The cumulative evidence to date shows a solid job market and a consumer who continues to spend," Carpenter wrote. "Those factors are self-reinforcing and can keep momentum going. The market has eased rates for the Fed, so we just need the Fed to follow through on our baseline for the soft landing to materialize."
Softer than expected PPI data 'positive for equities'
The Producer Price Index (PPI) came in cooler than expected in July, according to new data from the Bureau of Labor Statistics (BLS) released Tuesday morning.
US producer prices, often a signal for where consumer prices are heading, rose just 0.1% month-over-month last month, below economist forecasts. The index rose 2.2% year over year, almost in line with the Federal Reserve's 2% inflation target.
As of Tuesday morning, markets were pricing in a roughly 53% chance the Federal Reserve cuts interest rates by 50 basis points by the end of its September meeting, down from a 68% change one week prior, per the CME Fedwatch Tool.
"It's positive for equities," John Stoltzfus, chief investment strategist at Oppenheimer, told Yahoo Finance's The Morning Brief. "It releases some of the dark sentiment that had gripped [the market] ver the course of the start this month. We can't help but think that this gives the Federal Reserve the opportunity to begin cutting rates."
Stoltzfus said he believes the central bank will cut rates by 25 basis points in September with another 25 basis point cut after the election.
"Whether they do another one in December, I'm not sure," he said. "We've been looking for a long time for the second half of the year to be two cuts. ...But these numbers look good. They suggest that the Fed should get cracking when it comes to dealing with rates where they are."
Stocks open higher after cooler inflation data
US stocks opened higher on Tuesday as Wall Street digested cooler-than-expected inflation data and awaited an update on consumer prices, due Wednesday.
Shortly after the opening bell, the S&P 500 (^GSPC) rose about 0.7%, while the tech-heavy Nasdaq Composite (^IXIC) jumped roughly 1%. The Dow Jones Industrial Average (^DJI) inched up about 0.4%.
Chipotle stock tumbles 8% after CEO departs for Starbucks
Chipotle (CMG) stock fell as much as 8% in pre-market trading after the company announced the departure of its CEO, Brian Niccol, who will take the same role at Starbucks (SBUX) starting next month.
Niccol has been the CEO of Chipotle since 2018. Scott Boatwright, its COO, will serve as the company's interim CEO.
Niccol has been integral to Chipotle's rebound over the last several years, as the company recovered from an E. coli crisis that began in 2015 and weighed on shares for years.
In the year before Niccol joined the company, Chipotle's annual revenues were around $4.5 billion; by 2023, revenue had more than doubled, totaling $9.9 billion for the year. In the past five years, the stock has rallied more than 240% against an 85% gain for the S&P 500.
Ugly quarter out of Home Depot
There isn't much to like in this quarter out of Home Depot (HD).
A checklist ahead of the earnings call:
Same-store sales fell 3.3%.
Same-store sales missed the consensus estimate decline of 2.1%.
Transaction trends worsened from the first quarter.
Full year sales guidance was cut at the mid-point.
Full year EPS guidance was cut at the mid-point.
Chart of the morning comes compliments of BofA
The Bank of America fund manager survey for August is out, and it's clear that investors are worried about the outlook for growth.
The below chart shows a plunge in global growth expectations, which follows a steady drumbeat of negative economic surprises this month (mostly in the US).