U.S. stock rally set to stall after Microsoft and Alphabet earnings disappoint

U.S. stock futures fly high on cooler-than-expected inflation report

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U.S. stock futures started soaring Tuesday on the heels of a closely watched inflation report that turned out to be cooler than expected, bolstering the theory that peak inflation is in the economy’s rearview mirror.

How are stock-index futures trading
  • S&P 500 futures

    added 108 points, or nearly 2.7%, to 4133

  • Dow Jones Industrial Average futures

    rose 701 points, or 2%, to 34,970

  • Nasdaq 100 futures

    climbed 439 points, or 3.7%, to 12,269

On Monday, the Dow Jones Industrial Average

rose 529 points, or 1.58%, to 34005, the S&P 500

increased 56 points, or 1.43%, to 3991, and the Nasdaq Composite

gained 139 points, or 1.26%, to 11144. The Nasdaq Composite is up 8% from its 2022 low hit in mid-October, but remains down 28.8% for the year to date.

What’s driving markets

It’s all about the November inflation data from the Consumer Price Index — and what that means for the Federal Reserve’s ongoing battle for price stability.

The year-on-year CPI for November was 7.1%. That’s less than the forecast by economists expecting to see a decline to 7.3%. The 7.1% print is down from 7.7% last month. The closely-watched “core” CPI, which strips out food and energy costs, came in at 6% year over year. That’s lower than expectations and also lower than October’s 6.3% annualized increase.

The Fed will deliver its latest interest rate increase on Wednesday. The central bank is widely expected to raise rates by 50 basis points to a range of 4.25% to 4.50%. That would follow four jumbo-sized 75 basis point hikes.

The emerging question has been how big — or how small — the Fed goes from here on rate hikes. “This report indicates that they can decelerate their pace of hiking to a 50bp pace in their December meeting given the emergence of some evidence that certain components of inflation are slowing down,” said Gargi Chaudhuri, BlackRock’s head of iShares investment strategy, Americas.

The S&P 500 has fallen 16.3% so far this year in the face of the Fed raising borrowing costs by 375 basis points since March.

Throughout the year, trading on days of consumer price index data has been volatile.

“We don’t get many days as important as the next two, and the U.S. CPI today and the FOMC [Fed] tomorrow are likely to be the difference between a big Santa Claus rally and a visit from Scrooge ahead of Christmas,” said Jim Reid, strategist at Deutsche Bank, in a note ahead of the November CPI numbers.

“Bear in mind the S&P 500’s best and worst day of the year so far have both come on a CPI day, and it was only last month that the downside surprise triggered a seismic market reaction, leading to the biggest one-day gain for the S&P 500 (+5.54%) since April 2020, and the largest daily decline in the 2-year Treasury yield (-24.7bps) since 2008,” Reid added.

Companies in focus
  • Eli Lilly & Co. 

    released its 2023 guidance on Tuesday, highlighting potential launches on treatments including one for obesity. The pharmaceutical company is forecasting earnings per share (EPS) to range next year from $7.65 to $7.85, and adjusted EPS of $8.10 to $8.30.  Next year’s revenue could range from $30.3 billion to $30.8 billion, the company said. FactSet consensus called for an EPS of $9.16 and revenue of $30.2 billion. Shares are down 1% in premarket trading.

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