The Nasdaq Composite surged 1.5% on Thursday, leading a broad rally across major US stock indices, as a strong rebound in Tesla and Nvidia shares fueled optimism among investors. The S&P 500 climbed 1.04%, while the Dow Jones Industrial Average advanced 0.77%, as traders reacted positively to the latest inflation data. The report showed that producer prices rose less than feared, easing concerns that the Federal Reserve might have to maintain high interest rates for an extended period to combat inflation.
The latest Producer Price Index (PPI) data indicated that final demand prices increased by 0.4% in January, slightly above economists' forecast of 0.3%. However, an upward revision to December’s PPI, which was adjusted to 0.5%, helped ease worries about inflationary pressures. On a year-over-year basis, producer prices climbed 3.5% in January, compared to 3.3% in December. While these figures suggest that inflation remains elevated, investors took comfort in the notion that price increases may be stabilizing rather than accelerating.
"The revisions indicated higher inflation in the past, which makes today's unexpectedly high inflation number look small in comparison," said Kim Forrest, Chief Investment Officer at Bokeh Capital Partners. Bond yields responded to the inflation data by declining, with the 10-year US Treasury yield slipping to 4.55%, making equities more attractive to investors in comparison to fixed-income assets.
Following the PPI data release, traders adjusted their expectations regarding the Federal Reserve’s timeline for interest rate cuts. Prior to the report, market participants saw a nearly 60% probability that the Fed would hold rates steady until July. However, after the data was published, that probability declined to 52%, reflecting increased uncertainty about when the central bank might begin to ease monetary policy. The shift in rate expectations highlights how closely investors are scrutinizing economic data for clues about the Fed's future actions.
Investors continue to monitor economic indicators to assess the Fed’s next moves. Earlier this week, the Consumer Price Index (CPI) report revealed the fastest pace of price increases in nearly 18 months, reinforcing the central bank’s cautious stance on reducing interest rates too soon. The Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of inflation, has also pointed to persistent price pressures in recent readings. Some analysts now believe that if inflation does not cool significantly in the coming months, the Fed may be forced to keep interest rates higher for longer than previously expected.
Meanwhile, the US labor market remains strong, adding another layer of complexity to the Fed’s decision-making process. A separate report on Thursday showed that the number of Americans filing for unemployment benefits fell last week, suggesting that job growth remains robust. A strong labor market supports consumer spending, which is a key driver of economic growth, but it also raises the risk that inflation could remain sticky, making it more difficult for the Fed to justify rate cuts in the near term.
Among individual stocks, Nvidia continued its impressive rally, climbing $4.32 to close at $135.46. Tesla, which had been under pressure in recent weeks, rebounded sharply, surging $17.53 to reach $354.04. Apple also participated in the rally, gaining $3.99 to end at $240.86. Seven out of the 11 major S&P 500 sectors finished higher, with consumer discretionary and materials stocks leading the gains.
Despite the overall strength in the stock market, some companies faced challenges. Trade Desk, a leading ad tech company, suffered a steep 31.4% decline after its first-quarter revenue forecast fell short of analysts’ expectations, raising concerns about slowing digital advertising demand. Deere & Co., the farm equipment manufacturer, also struggled, dropping 3.3% after reporting a 35% decline in quarterly revenue, which missed Wall Street estimates and reflected weakness in the agriculture sector.
On the other hand, several companies posted strong earnings results. Cisco Systems gained 2.4% after raising its full-year revenue forecast, citing strong demand for networking hardware and software. Robinhood Markets, the online trading platform, surged 11.9% after reporting better-than-expected fourth-quarter profits, driven by an increase in trading activity and higher interest income.
Market breadth was broadly positive, with advancing stocks outpacing declining ones by a 2.56-to-1 ratio on the New York Stock Exchange (NYSE) and by a 1.61-to-1 ratio on the Nasdaq. The S&P 500 recorded 21 new 52-week highs against seven new lows, while the Nasdaq Composite saw 63 new highs and 38 new lows, reflecting broad-based strength across the market.
As investors look ahead, they remain focused on upcoming economic data releases and Federal Reserve commentary. Key reports on retail sales, consumer sentiment, and housing market trends will provide further insights into the strength of the economy and potential shifts in monetary policy. With inflation, labor market dynamics, and corporate earnings all influencing market sentiment, volatility is likely to persist as traders navigate an uncertain economic landscape.
