US Stocks Rise as Inflation Slows, Fed Expected to Cut Rates

Summary

U.S. stocks saw an increase on Friday as slowing inflation rates fueled speculation that the Fed might reduce rates in March. Furthermore, indicators are hinting at a swift deceleration in inflation, bolstering prospects for an earlier rate cut. Notably, this could take the Fed funds rate to a range of 3.5%-3.75%. Major companies such as Nike and Tesla made headlines for various reasons; while Nike’s shares dipped due to a weak revenue outlook, Tesla announced a recall of over 120K EV’s, impacting the market scenario.

On Friday, U.S. stocks rose as inflation eased more than anticipated, bolstering predictions for a cut in Federal Reserve (Fed) rates, possibly as early as March. 

As of 13:00 ET (18:00 GMT), the contract rose by 59 points, or 0.2%, saw a 0.4% increase, and likewise grew by 0.4%.

These averages pave the way for an eighth consecutive week of gains, a first since 2017 for one and since 2019 for the DJIA.

Indications of disinflation momentum

Considered as the Fed’s main inflation indicator, the annualized rate through November ebbed by 0.1%, settling at 2.6%, below the anticipated 2.8%.

The measure that excludes unstable food and energy expenses, a crucial barometer of inherent inflation, also decelerated to 0.1%, compared to the 0.2% expectation.

Evidence of swift inflation deceleration has elevated hopes for an imminent rate cut, with probabilities for a March cut at 85%, up from 75% the previous day as per Investing.com’s Fed Rate Monitor Tool.

Investors are now forecasting 175 basis points of cuts by the end of next year, potentially bringing the Fed funds rate to a range between 3.5% and 3.75%, considerably more aggressive than the three rate cuts projected by the Fed at their December meeting.

Nike’s revenue decline; Tesla recalls over 120K vehicles

Confronted with a softening second-half revenue outlook due to cautious consumer spending, Nike slashed its annual sales forecast, triggering an 11% drop in its shares.

Nike now anticipates full fiscal-year revenue growth of about 1%, a decrease from its prior mid-single-digit percentage growth prediction.

The company is also planning to cut roughly $2 billion in costs over three years, equal to 50% of Nike’s annual demand creation expenditure budget, which according to RBC could be potentially beneficial for mid-term growth and profitability, if effectively redeployed.

Decreased guidance reflecting worse than expected consumer demand across markets adversely impacted the shares of related companies and retailers including Foot Locker.

Tesla is planning to recall over 120,000 Model S and Model X vehicles in the U.S. amid potential risks of cabin doors being unlocked during a crash, as announced by the country’s road safety regulator.

Bristol Myers’ deal with Karuna Therapeutics Inc and Rocket Lab USA, Inc.’s contract win

Karuna Therapeutics Inc stocks jumped nearly 50% after it was revealed that Bristol-Myers Squibb Company plans to purchase the company for $14 billion.

Rocket Lab USA, Inc. saw its shares soar 24% following the announcement that its subsidiary secured a $515 million contract from the U.S. government to manufacture and operate 18 space vehicles.

These significant market movements can have a considerable impact on Forex and trading activities, influencing multiple asset classes.

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