US stocks pared premarket losses Thursday but remained under pressure after a cooler-than-expected reading on producer prices helped soothe investor worries stemmed by Wednesday’s surprise uptick in consumer prices.
Futures on the Dow Jones Industrial Average (^DJI) and S&P 500 (^GSPC) slipped around 0.1%, coming off a rout that saw the gauges drop about 1%. Contracts tied to the tech-heavy Nasdaq 100 (^NDX) traded around the flatline.
Meanwhile, the 10-year Treasury yield (^TNX) traded around 4.57%, up slightly after surging to touch its highest level since November on Wednesday.
The Producer Price Index in March rose 0.2% from the previous month, a lower rate of growth than economists had forecast. Year-over-year growth of 2.1% was also below estimates. However, that annual growth represented the fastest jump in producer prices in nearly a year.
Stocks pulled back and bond yields soared after a hotter-than-expected March CPI report prompted investors to reassess expectations for Federal Reserve policy. The market is now pricing in just two rate cuts in 2024, to come later in the year than foreseen. A handful of analysts believe no cuts or even a hike may be possible, depending on how economic data shape up.
Across the pond, the European Central Bank held rates steady at record highs but gave a clear signal that rate cuts were on the way.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards.
Another headwind, rising oil prices, returned to the fore amid growing worries about a potential attack on Israel by Iran forces. Crude futures slipped but stayed near six-month highs, with West Texas Intermediate (CL=F) trading a tad below $86 per barrel, while Brent (BZ=F) stayed above $90.
Against that backdrop, hopes are that first-quarter corporate results can provide momentum to stocks, given limited signs that high borrowing costs are slowing earnings. As reports trickle in, investors are bracing for quarterly updates from some of America’s biggest banks, including JPMorgan (JPM), to usher in the season in earnest on Friday.
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The day after the CPI sell-off
Yesterday was one of those shock moments in markets.
We have all lived through worse sessions for stocks and seen more eye-opening economic reports, so it wasn’t shocking in that context. It was just that investors were caught off guard by the inflationary CPI report, and they sold stocks because everyone else was selling and saying to sell.
Some calm has returned to markets this morning, but futures are still under pressure and nervousness is in the air ahead of the PPI report.
A new survey of US investors out of JP Morgan also isn’t bolstering sentiment on the Street. You can see below that investor appetite to own stocks has fallen sharply as rate cut hopes have been dialed back.
Less of an appetite to own stocks here. (JP Morgan)
