US Stocks Continue to Find New Price Highs

The relentless surge in the S&P 500 index continues with no end in sight. 

SP 500 – Daily Chart

SP 500 – Daily Chart 

The index of the top 500 US stocks continues to press higher at 5,185 this week. Support is now way back at the 4,820 level, and there is no sign of a market event that could fuel a correction yet. 

Stocks and treasury yields were higher on Tuesday after data showed that US inflation remained elevated in February. This indicated that the Federal Reserve could keep interest rates higher for longer than the market hoped. 

The US Federal Reserve is expected to cut its benchmark interest rate from a 23-year high in the summer.  

However, the consumer price index (CPI) rose 0.4% last month due to higher costs for gasoline and housing, the Labor Department said, matching the estimate of economists polled by Reuters, after increasing 0.3% in January. In the 12 months through February, the CPI was up by 3.2% and above the 3.1% analysts had expected. 

Market expectations for the Federal Reserve’s first rate cut remained unchanged, with a 69.7% chance of a minimum 25 basis points cut in June, according to CME’s FedWatch Tool. However, it was down from 71.7% on the previous day. 

Costs for motor insurance and health services mainly drove Tuesday’s price rises. Traders will now look to Fed officials’ comments in the coming days to see if their path on rates has been altered. 

“These inflation numbers presage a rockier period ahead for the Fed,” said Professor Eswar Prasad at Cornell University. 

“Although the US economy has held up well so far, there is a risk that persistent inflation and the Fed’s response to it might turn a soft-landing scenario into a soft-stagflation one,” he said. 

Billionaire investor Ken Griffin warned the Fed against moving too fast on interest rates: “If I were them, I wouldn’t want to cut too quickly. The worst thing they could end up doing is cutting, pausing, and then changing direction back toward higher rates quickly. That would, in my opinion, be the most devastating course of action they could pursue.” 

PPI numbers on Thursday and the country’s retail sales figures will be a price driver for stocks. A bounce to 0.8% is expected in the February retail sales after last month’s -0.8% drop. 

The broader stock market continues to be driven by a rally in tech names, with Nvidia up 30% in the last month.

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