U.S. stock investors received a temporary reprieve from the recent market downturn as the latest Consumer Price Index (CPI) data came in below expectations. The S&P 500 Index rebounded 0.49% after experiencing two consecutive days of significant declines. However, the market's overall performance remained volatile due to escalating trade tensions under President Trump's administration, which limited the gains.
Despite the initial positive reaction to the CPI data, the bond market saw a reversal with yields climbing throughout the day. The 2-year U.S. Treasury yield increased by 4.35 basis points to 3.9845%, the 5-year yield rose by 3.5 basis points to 4.0663%, the 10-year yield went up by 2.87 basis points to 4.3086%, and the 30-year yield climbed 3.19 basis points to 4.6277%.
Analysts noted that while the CPI slowdown provided some relief, the uncertainty surrounding the economic impact of tariffs persists. Some Wall Street voices suggest that this data might only represent a temporary calm before potential economic challenges. TD Securities analysts highlighted that despite the improvement in the CPI, inflation outlook remains uncertain due to trade policy developments.
The S&P 500 and Nasdaq indexes were primarily boosted by strong performances from large-cap technology and momentum stocks. However, the Dow Jones Industrial Average fluctuated throughout the day and ultimately closed slightly lower. This divergence was also evident in the underperformance of the equal-weighted S&P 500 Index compared to the market-cap-weighted index.
Looking ahead, market participants are focused on the upcoming U.S. February Producer Price Index (PPI) report to assess its impact on the March 28 Personal Consumption Expenditures (PCE) data. Additionally, the looming threat of a U.S. government shutdown is becoming more pronounced, with Senate Democrats indicating unwillingness to compromise on a temporary funding bill passed by the House. This has led to a significant surge in the U.S. 1-year sovereign Credit Default Swaps (CDS) over the past month.
