Wall Street ends mixed while inflation data keeps Fed rate-cut hopes intact

By Sinéad Carew and Purvi Agarwal

(Reuters) -The Dow and the S&P 500 rose slightly on Wednesday after October data showed consumer prices rising in line with expectations, adding support to bets that the U.S. Federal Reserve will cut interest rates in December.

The consumer price index (CPI) rose 0.2% in October for the fourth straight month and advanced 2.6% on an annual basis, the Labor Department's Bureau of Labor Statistics said. Excluding the volatile food and energy components, the CPI increased 0.3% in October, meeting economists' forecasts.

After the report, traders' bets reflected a more than 82% probability for a 25 basis-point interest rate cut at the Fed's December meeting, up from 58.7% on Monday, according to CME group's FedWatch tool.

While some Fed officials sounded more cautious on Wednesday, Minneapolis Fed President Neel Kashkari told Bloomberg TV that he was confident inflation was headed down, noting that the CPI data "confirms" that downward path.

"There's some relief inflation didn't come in ahead of expectations. That was a concern coming into today's CPI report," said Angelo Kourkafas, senior investment strategist at Edward Jones. "The fact we got a right in-line number helped alleviate some of those fears. Nothing we saw today from today's data argues against a December rate cut."

Outperformance in the consumer discretionary sector index, up more than 1% on the day, was likely due to bets on rate cuts, according to Kourkafas.

Still, Dallas Federal Reserve President Lorie Logan said the U.S. central bank should proceed cautiously on further interest rate cuts to keep from inadvertently re-igniting inflation.

St. Louis Fed President Alberto Musalem said the Fed is in the "last mile" of its inflation fight though recent data raised the risk that progress may slow or reverse, on Wednesday.

According to preliminary data, the S&P 500 gained 2.98 points, or 0.05%, to end at 5,986.97 points, while the Nasdaq Composite lost 45.18 points, or 0.23%, to 19,236.22. The Dow Jones Industrial Average rose 50.22 points, or 0.11%, to 43,960.43.

Also implying December rate cut bets, U.S. Treasury 2-year yields fell sharply after the inflation report.

However, the benchmark 10-year yield regained ground it lost after the data and rose as high as 4.46% as investors focused on longer-term expectations that President-elect Donald Trump's policies could exacerbate inflation.

Despite inflation worries, investors are hopeful of a pro-business stance and possible tax cuts from the incoming U.S. president. Media outlets projected on Wednesday that the Republican Party had won a majority in the House of Representatives as well as the Senate.

"The market has already reacted quite positively to the election news," said Venu Krishna, head of U.S. equity strategy and global equity-linked strategies at Barclays (LON:BARC ). "A lot of the optimism is baked in but what's not baked in fully is some of the uncertainty that comes with certain significant policy postures."

But while Krishna sees upside momentum for risk assets from Republican policies, he said the market is contending with concerns that "rates, inflation and valuations are bigger headwinds now than they were in 2016, the last time Trump became president.”



In individual shares, Spirit Airlines (NYSE:SAVE )' shares plunged on Wednesday after a report the U.S. carrier is preparing to file for bankruptcy protection, while the company said it is talking with creditors.

Shares of EV maker Rivian (NASDAQ:RIVN ) soared after Volkswagen (ETR:VOWG_p ) on Tuesday raised its investment in the company by 16% to $5.8 billion.

Source: Investing.com