Traders on the floor of the New York Stock Exchange were greeted with positive news on August 31, 2023, as the Dow Jones Industrial Average ticked up following the release of encouraging U.S. inflation data. The 30-stock Dow climbed 267 points, or 0.67%, while the S&P 500 inched up 0.35% and the Nasdaq Composite slipped 0.13%. This uptick in the market came after the Bureau of Labor Statistics reported that consumer prices increased 2.9% year-over-year, down from 3% in June and the lowest reading since March 2021. Month-over-month, prices ticked up 0.2%, in line with economists’ expectations.
The report on consumer prices comes on the heels of lighter-than-expected wholesale inflation figures, which had given stocks a boost the previous day. The positive data has investors looking towards the possibility of an interest rate cut at the central bank’s September meeting. The question now is whether the Federal Reserve will cut rates by 25 or 50 basis points next month. Futures market pricing is split between expectations for a quarter or half-percentage point reduction at the central bank meeting on Sept. 17-18, with forecasts for a total basis point shift by the end of the year.
The market reaction to the data was mixed, with shares of Kellanova surging more than 7% following news of its acquisition by snack maker Mars in a $36 billion deal. However, Google-parent company Alphabet and electric vehicle company Tesla led the Nasdaq lower with declines of more than 3% each. Despite these fluctuations, all three major averages are now above their Aug. 2 closing level, which was the session before the global market sell-off on Aug. 5 that was attributed to concerns about economic growth and an unwind of the yen carry trade.
Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock, believes that while growth risks have increased, the market may have overreacted to a small number of soft data points rather than a drastic change in the macroeconomic outlook. The market will continue to monitor economic indicators over the next few weeks to gauge the need for further rate cuts by the Federal Reserve.
Overall, the positive inflation data and market reaction on August 31st reflect the ongoing uncertainty and volatility in the financial markets. Investors will be closely watching upcoming economic reports and central bank decisions to navigate the ever-changing landscape of the stock market.
