US close: S&P 500 hits another record as investors shrug off inflation surprise

dl wall street wall st new york city nyc ney york stock exchange nyse nasdaq dow jones industrial average djia trading us usa united states of america 2023120702241 — Sharecast graphic / Josh White

US stocks rose strongly on Tuesday with the S&P 500 notching yet another record close as investors largely shrugged off an unexpected pick-up in inflation, holding on to hopes that the data won't derail the Federal Reserve's plans to soon start cutting interest rates.

The S&P 500 rose 1.12% to a new closing high of 5,175.27, extending the year-to-date rally to 9.12%. The Dow gained 0.61% while the Nasdaq jumped 1.54%.

According to the Department of Labor, headline consumer prices increased at a 0.4% month-on-month pace in February, which served to push the year-on-year rate of increase from 3.1% in January to 3.2%, despite economists' expectations for no change. Core CPI also rose, up by 0.4% month-on-month, while the annual rate inched lower to 3.8% from 3.9%, albeit still higher than the 3.7% expected by the market.

February's producer price index was slated for release on Thursday, with the two key pieces of inflation data marking some of the last major macro data points scheduled for release ahead of the Federal Reserve's next monetary policy meeting on 19 March.

Meanwhile, other data from the National Federation of Independent Business showed that inflation was still a concern for many small business owners, with 23% citing price pressures as their single most important business problem in operating their business in February, up from 20% the month before and overtaking labour quality as the biggest risk.

Despite the negative data, traders were undeterred, as markets moved higher following the releases on hopes the upside surprise won't alter market expectations for a rate-cut by the Fed sometime in the first half of the year.

“The narrative that inflation would melt away almost as quickly as it flared up always felt too good to be true, but those last few percentage points are proving stubbornly sticky in the US where the economy has kept on trucking despite high interest rates which are beginning to take their toll on American households,” says Danni Hewson, head of financial analysis at AJ Bell.

“Hopes that the Federal Reserve might feel its hand is ready to twist before the summer have been fading for a while, but markets are still betting the call will come in the first half of this year and that the soft landing is still in sight."

Market movers

Oracle shares surged nearly 12% after its fourth-quarter earnings topped Wall Street estimates as its cloud services and license support segment saw a 12% increase in revenues.

Investors of 3M gave a warm welcome to the news of a new chief executive with the former head of L3Harris Technologies expected to join the group in May, with the stock popping 5%.

Airlines were mostly lower with Boeing down 5% on reports of failed audits on its 737 Max plane, following the mid-air disaster during an Alaska Airlines flight in January that saw a side panel fly off the aircraft.

Meanwhile, Southwest dropped 15% after the carrier revealed it was having to "reevaluate" its guidance for 2024 due to delivery delays from Boeing.

Dow Jones - Risers

3M Co. (MMM) $98.72 4.97%
International Business Machines Corporation (CDI) (IBM) $197.78 3.16%
Microsoft Corp. (MSFT) $415.28 2.66%
Walmart Inc. (WMT) $61.41 1.24%
Visa Inc. (V) $284.04 1.20%
American Express Co. (AXP) $222.65 1.12%
Johnson & Johnson (JNJ) $162.87 0.94%
Intel Corp. (INTC) $45.24 0.85%
JP Morgan Chase & Co. (JPM) $190.09 0.82%
Home Depot Inc. (HD) $374.54 0.81%