Rate-sensitive and tech-heavy Nasdaq Composite gained over 1% at the 12,306 mark and the general S&P 500 index inched up 0.45% to 4,137 on Wednesday’s trading session as investors reacted positively to the decline of the U.S. CPI-inflation rate to 4.9% in April, raising hopes that the Federal Reserve's interest rate hiking cycle is close to an end.
The Labor Department's Consumer Price Index (CPI), which measures the cost of a broad swath of goods and services, rose 4.9% in April from a year ago, compared with expectations of a 5% increase, while the month-over-month CPI rose 0.4% in April after gaining 0.1% in March.
According to the report, declines in prices for fuel oil, new vehicles, and food at home were offset somewhat by increases in shelter, gasoline, and used vehicles.
Core CPI, a widely followed measure of inflation that excludes volatile food and energy categories, rose 0.4% monthly and 5.5% from a year ago, both in line with expectations.
Fed funds futures traders are now pricing in a pause in rate increases at the central bank's June meeting, and less than a 5% chance of another 25-basis point hike, while they expect a Fed rate cut beginning this summer as the inflation rates are easing.
CPI inflation still has held above the Fed’s 2% annual target, despite the central bank’s 10 consecutive interest rate increases (totaling 5% bps) to bring it down from the 40-year high of 9% in June 2022.
The relief in inflationary pressure boosted growth-sensitive technology stocks, with large-cap tech names including Alphabet (Google) and Amazon settling higher by 4.10% and 3.35% respectively, Microsoft added 1.7%, while Apple and Netflix ended the session with 1% gains.
Growth companies including the technologies, rely more on borrowed money so they benefit from lower interest rates, while they also provide safety and diversification during market turmoil.
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