U.S. stocks closed mixed on Tuesday as investors digested the first of two key inflation reports this week, showing that prices rose less than expected in December. The report on the Producer Price Index (PPI), which tracks price changes at the wholesale level, showed a 3.3% increase year-over-year, slightly higher than November’s 3%, but still below expectations. On a monthly basis, PPI rose 0.2%, also lower than economists’ predictions.
This data sets the stage for Wednesday’s eagerly anticipated Consumer Price Index (CPI) report, which is expected to reveal whether inflation remains sticky despite the Federal Reserve’s efforts to curb it. The outcome of the CPI report will be closely scrutinized for any signs that inflationary pressures are easing or persisting.
Sector Performance: Dow Rises, Nasdaq Declines
The day saw divergent performances across major indexes. The Dow Jones Industrial Average (^DJI) gained about 0.5%, marking a second consecutive day of gains for the blue-chip index. On the other hand, the Nasdaq Composite (^IXIC) dipped around 0.2%, reflecting weakness in tech stocks. The S&P 500 (^GSPC) finished the day approximately 0.1% higher, indicating a neutral stance for the broader market.
The Producer Price Index and Its Implications
The PPI report revealed that inflation is still present but not accelerating as much as feared. The year-over-year increase of 3.3% in wholesale prices was a slight uptick from November, but still lower than the 3.5% that analysts had expected. The monthly 0.2% rise in December was also less than the 0.4% forecast. This data gives hope that inflation might be moderating, but there are still concerns about how long it will take for prices to return to more manageable levels.
Focus on Trump Administration’s Tariff Plans
Another headline that weighed on markets was a report suggesting that President-elect Donald Trump’s team is considering implementing tariff increases on a month-by-month basis rather than in one large hike. This gradual approach could potentially ease inflationary pressures but might also complicate the Federal Reserve’s job of controlling inflation.
The possibility of tariffs driving up prices has been a concern for markets, as it could limit the Fed’s ability to lower interest rates. A UBS strategist noted that while a gradual increase in tariffs might be less impactful than a sharp hike, it could still prove problematic for the central bank’s efforts to manage inflation.
Treasury Yields and the Dollar
In the currency and bond markets, the U.S. dollar (DX-Y.NYB) retreated after a five-day winning streak. Meanwhile, the 10-year Treasury yield (^TNX) continued to hover around 14-month highs, indicating ongoing investor concern about inflation and interest rates.
Looking Ahead: The CPI Report
As investors brace for Wednesday’s CPI report, all eyes are on the inflation figures. A higher-than-expected CPI reading could fuel further concerns about inflation and the Fed’s next move, potentially putting downward pressure on stocks. Conversely, a lower CPI number could strengthen the case for a more dovish Federal Reserve stance, lifting market sentiment.
In conclusion, the stock market ended mixed on Tuesday as the focus shifted to upcoming inflation data. With the PPI report suggesting inflation is not worsening, investors are now looking to the CPI for further clues on whether inflation is truly cooling or if more Fed tightening is on the horizon.
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