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Slowing inflation elicited only a muted response from markets, suggesting that investors are preoccupied with other concerns.
What you need to know today
- Prices in the U.S. are still rising, but at a slower pace. Consumer prices in April rose 0.4% for the month and 4.9% from a year ago — slightly lower than the estimate of 5%. Core CPI, which excludes food and energy, rose 0.4% for the month and 5.5% from a year ago, in line with expectations.
- U.S. markets were mixed Wednesday even as inflation in April was better than feared. Europe's Stoxx 600 index fell 0.4%, with most major European markets in negative territory.
- Disney shares fell 4.5% in extended trading after the company reported a 2% drop in subscriptions to Disney+, its streaming service. Still, the company performed pretty well last quarter: its revenue rose 13% year over year to $21.82 billion, while profit, boosted by the company's parks, experiences and products division, was in line with Wall Street estimates.
- Google held a keynote Wednesday announcing new products and services. Of note: A $1,799 folding phone; new artificial intelligence features for Search and Gmail; a new large language model that underpins Google's generative AI products. Investors were thrilled, pushing Google shares up 4.1%.
- PROÂ Big Tech stocks could soar up to 50% this year, according to Fundstrat's co-founder Tom Lee, who cited those companies' lack of competition, sustained demand from consumers and strong prospects of future profit.
The bottom line
The consumer price index for April showed that inflation in the U.S. is moderating. But the topic that dominated markets last year seemed to have elicited only a muted response yesterday, suggesting that investors are preoccupied with other concerns.
Annual inflation came in at 4.9% last month; JPMorgan Chase's sales and trading team predicted that the S&P 500 would rise between 1% to 1.25% on that better-than-expected number. Yet the S&P added only 0.45% and the Dow Jones Industrial Average remained mostly flat. Only the Nasdaq Composite posted a more substantial gain at 1.04%, reflecting its tech-heavy composition which is more sensitive to interest rates.
That muted movement could be because the Federal Reserve had, at its last meeting, suggested it might pause rate hikes. In other words, the CPI reading mattered less to markets because interest rate trajectory — which is highly dependent on inflation — appears more certain now. (Though we should remember that New York Fed President John Williams warned the central bank might still increase rates if inflation proved stubborn).
Hence, investors focused more on the ongoing ruction in banks and companies' quarterly performance.
For the first, there's a silver lining to the turmoil, at least. First Citizens popped 7.45% after it announced a $257 million surge in first-quarter net income, following its purchase of Silicon Valley Bank in March.
It was mostly bad news for companies that reported earnings, however. Airbnb lost 10.9% and Twilio sank 12.6% after both companies projected a weak second quarter. Disney suffered in extended trading as traders punished its loss of Disney+.
The producer price index, coming out later today, will reveal wholesale prices — and hence might give a better forecast than the CPI of how inflation will look in the coming months. Still, barring a shocking number, it's unlikely markets will be too swayed by it. Investors will keep their eyes trained on banks and corporate earnings.
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