FX.co ★ Tamer-Than-Expected Inflation Data Leads To New Record Highs On Wall Street

Investor optimism in response to key consumer price inflation data propelled stocks significantly higher on Wednesday, with major indices building on Tuesday's gains to set new record closing highs.

Late-session trading saw further momentum, pushing the indices to fresh daily highs. The tech-centric Nasdaq soared by 231.21 points, or 1.4%, to close at 16,742.39. The S&P 500 advanced by 61.47 points, or 1.2%, to 5,308.15, while the Dow climbed by 349.89 points, or 0.9%, to end at 39,908.00.

The rally was sparked by a Labor Department report revealing that U.S. consumer prices increased slightly less than anticipated in April.

According to the Labor Department, the consumer price index (CPI) rose by 0.3% in April, following a 0.4% rise in March. Economists had predicted a 0.4% increase for April.

Core consumer prices, which exclude food and energy, also rose by 0.3% in April, matching the preceding month’s increase and economist expectations.

Annual consumer price growth decelerated slightly to 3.4% in April from 3.5% in March, aligning with forecasts.

The rate of core consumer price growth also slowed, decelerating to 3.6% in April from 3.8% in March, in line with projections.

This data, coming on the heels of yesterday’s hotter-than-expected producer price inflation figures, bolstered renewed optimism about the future of interest rates.

"The CPI print provides a glimmer of hope that inflation is gradually cooling," remarked Quincy Krosby, Chief Global Strategist at LPL Financial. "The Fed will need a series of moderate inflation reports to adjust its rate easing schedule, but the CPI data suggests the path towards a 2% target is becoming less rocky."

The Commerce Department concurrently released a separate report indicating that retail sales in the U.S. remained flat in April, contrary to expectations.

Retail sales were virtually unchanged in April after being revised downward to a 0.6% increase in March, contrary to economists’ forecasts of a 0.4% rise for April. Excluding motor vehicle and parts dealers, retail sales edged up by 0.2%, in line with expectations, after a 0.9% increase in March.

Sector News

Computer hardware stocks experienced substantial gains, driving the NYSE Arca Computer Hardware Index up by 4.1% to a record closing high. Notably, shares of Dell (DELL) surged after Morgan Stanley raised its price target for the tech giant to $152 from $128, citing it as the "best play" for the AI infrastructure boom.

Housing stocks also exhibited significant strength, with the Philadelphia Housing Sector Index rising by 3.4% to its highest level in over a month, despite a report from the National Association of Home Builders showing an unexpected dip in homebuilder confidence in May.

Semiconductor stocks saw robust performance, as the Philadelphia Semiconductor Index rose by 2.9% to achieve a two-month closing high.

Additional strength was observed in software, brokerage, and commercial real estate stocks, while airline stocks were among the few sectors to diverge from the upward trend.

Other Markets

In overseas trading, Asia-Pacific markets ended mixed on Wednesday, with Hong Kong and South Korean markets closed for holidays. Japan’s Nikkei 225 Index edged up by 0.1%, and Australia’s S&P/ASX 200 Index gained 0.4%, while China’s Shanghai Composite Index decreased by 0.8%.

European markets were broadly positive, with the German DAX Index advancing by 0.8%, and the U.K.’s FTSE 100 Index and France’s CAC 40 Index both rising by 0.2%.

In the bond market, treasuries surged in response to the consumer price inflation data, driving the yield on the benchmark ten-year note down by 10.1 basis points to 4.344%.

Looking Ahead

Thursday's trading may be influenced by reactions to another set of U.S. economic data, including reports on weekly jobless claims, industrial production, and import and export prices.