US Stock Market: Muted Response to CPI Data Suggests Investors Want More Than One Rate Cut

This means that investors aren’t likely to take the markets much higher until they see the Fed’s rate projections following next week’s meeting. In other words, the next leg up in the stock market hinges upon whether the Fed hints at 2 or 3 rate cuts later this year.
James Hyerczyk
U.S. Equity Markets

The major U.S. stock indexes retreated for a second session on Wednesday with the brunt of the pressure coming from weakness in the energy sector following another plunge in crude oil prices. The technology sector was a close second with the selling driven by a weak performance in chip stocks.

Crude oil prices plunged 4% on Wednesday after a government report showed a large increase in U.S. crude stockpiles. According to the Energy Information Administration (EIA), U.S. commercial crude inventories rose by 2.2 million barrels in the week through June 7. Traders were looking for a draw of 481,000.

Semiconductor stocks were pressured after an Evercore ISI analyst said a recovery in the space will likely be pushed back to the second half of 2020. The news also drove Lam Research 5.3% lower, followed by losses in Applied Material, KLA-Tencor and Teradyne. The one-sided weakness led to a 2.2% drop in the VanEck Vectors Semiconductors ETF (SMH).

From top to bottom:

  • Utilities closed 1.33% higher. It is up 23.91% in 2019.
  • Health Care closed 0.51% higher. It is up 7.45% in 2019.
  • Materials closed 0.31% higher. It is down 5.11% in 2019.
  • Real Estate closed 0.26% higher. It is up 17.34% in 2019.
  • Industrials closed 0.02% higher. It is down 1.50% in 2019.
  • Consumer Staples closed 0.04% higher. It is up 14.86% in 2019.
  • Consumer Discretionary closed 0.11% lower. It is up 5.57% in 2019.
  • Communication Services closed 0.28% lower. It is up 5.06% in 2019.
  • Information Technology closed 0.58% lower. It is up 6.63% in 2019.
  • Financials closed 0.95% lower. It is down 3.35% in 2019.
  • Energy closed 1.44% lower. It is down 21.48% in 2019.

The price action in the sectors suggests traders are not standing in the way of headline driven price action like in the Energy sector. Instead, they are taking protection in a few of the other underperforming sectors. Furthermore, expectations of lower interest rates are helping to make the Utilities sector an attractive investment. At the same time, the Financials are being pressured by underperforming bank stocks, which are falling due to the plunge in Treasury yields.

Investors Shrug off Muted Consumer Inflation Data

Last week, stocks took off after Federal Reserve Chairman opened the door to a rate cut later this year. Traders are now pricing in an 85% chance of a cut in July. However, investors showed a limited response to the muted consumer inflation data released early Wednesday. Although the weak inflation numbers likely solidified the rate cut, the price action suggests the interest rate cut premium put into the market during the week-long rally is probably over. This means that investors aren’t likely to take the markets much higher until they see the Fed’s rate projections following next week’s meeting. In other words, the next leg up in the stock market hinges upon whether the Fed hints at 2 or 3 rate cuts later this year.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All

Top Promotions

Top Brokers

The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.