The New York Stock Exchange is shown on Tuesday, June 11, 2024. Wall Street stumbled in premarket trading ahead of a busy week of inflation reports and the Federal Reserve's latest interest rate policy decision. (AP Photo/Peter Morgan)
NEW YORK (AP) – U.S. stocks closed higher following a surprisingly encouraging update on inflation. The S&P 500 rose 0.9% Wednesday, closing at another record high, after the Federal Reserve also gave reassurance that it still sees a cut to interest rates as likely this year. The Nasdaq composite rose 1.5%, also beating the all-time high it set a day earlier. The Dow Jones Industrial Average lagged the market and slipped 0.1%. Treasury yields tumbled in the bond market after the report in the morning showed a slowdown in inflation in consumer prices during May. The yield on the 10-year Treasury note fell to 4.33%.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
NEW YORK (AP) – U.S. stocks are climbing Wednesday following a surprisingly encouraging update on inflation. The Federal Reserve also gave reassurance that its policymakers still see a cut to interest rates, something Wall Street deeply desires, as likely this year.
The S&P 500 was 1% higher in afternoon trading and on track to add to its all-time high set a day earlier. The Nasdaq composite was also building on its own record and was up 1.9% as of 3 pm. Eastern time. The Dow Jones Industrial Average was lagging the market and was close to flat.
The action was even stronger in the bond market, where Treasury yields tumbled after the report showed U.S. consumers paid prices that were 3.3% higher for food, insurance and everything else last month, versus a year earlier. Economists had been expecting to see the inflation rate stuck at 3.4%.
For Wall Street, a slowdown in inflation not only helps U.S. households struggling to keep up with fast-rising prices, it also opens the door for the Federal Reserve to cut its main interest rate. Such a move would ease pressure on the economy and give a boost to investment prices.
Everything from bitcoin to gold to copper rallied after the inflation data raised expectations for coming cuts to interest rates. A measure of nervousness among investors in U.S. stocks also eased.
For its part, the Federal Reserve kept its main interest rate steady on Wednesday following its latest policy meeting.
Policymakers welcomed Wednesday’s update on inflation, but “we’ll need to see more good data to bolster our confidence,” Fed Chair Jerome Powell said. He repeated the Fed’s mantra that it needs an accumulation of data showing inflation is sustainably heading toward its 2% target before it lowers the federal funds rate, which is at the highest level in more than two decades.
“We’ll have to see where the data light the way,” he said, reiterating the Fed’s commitment to moving based on where incoming reports steer it.
The Fed is in a tight spot with a lot on the line. Cutting interest rates too soon or by too much could allow inflation to reaccelerate, while waiting too long would put unnecessary pain on the economy.
“It’s a consequential decision for the economy, and you want to get it right,” Powell said.
The Fed indicated Wednesday that most of its policymakers are still forecasting at least one cut to interest rates at some point this year. They also raised their forecast for the number of cuts in 2025.
The Fed trimmed its forecast for cuts to rates this year down from three after progress seemed to stall early this year on bringing inflation lower. Such a fall-off was widely expected, and traders are still largely betting on the first of potentially two cuts to rates this year coming in September, according to data from CME Group.
That had areas of the stock market that tend to benefit most from lower interest rates doing the best.
Smaller companies that need to borrow to grow and feel the pinch of higher interest rates more than their larger rivals were leading the market. The smaller stocks in the Russell 2000 index jumped 2.2%.
Real-estate stocks were also climbing. Lower interest rates mean bonds are paying less in interest, which can send potential investors to dividend-paying real-estate owners instead. Office owner Boston Properties jumped 3.3%.
Lower interest rates could also pull down mortgage rates and inject energy into the housing market. Homebuilder D.R. Horton climbed 3.6%.
Oracle helped lead Wall Street higher with a jump of 12.9% even though it reported weaker profit for the latest quarter than analysts expected. Financial analysts pointed to strong bookings, including contracts related to artificial-intelligence training.
A furor around AI has helped send stocks to records despite worries about high interest rates and the slowdown in the economy that they induce. Nvidia again was one of the strongest forces pushing the S&P 500 higher, with a gain of 3.7%. The chip company has become the poster child of the AI rush, and its total market value has topped $3 trillion.
The only company to push more on the S&P 500 than Nvidia was Apple, which jumped 6.1%. Its stock has been jumping the last two days after getting a cool initial reception to the announcement of several AI-related offerings coming to its operating systems.
In the bond market, the yield on the 10-year Treasury fell to 4.29% from 4.40% late Monday and from 4.60% a couple weeks ago. The two-year Treasury yield, which more closely tracks expectations for the Fed, slumped to 4.74% from 4.83% late Monday.
In stock markets abroad, European indexes jumped following the release of the encouraging U.S. inflation data. In Asia, where markets closed before the data came out, indexes were mixed. Japan’s Nikkei 225 index lost 0.7% as investors wait for the Bank of Japan’s latest announcement on interest rates due Friday.
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AP Business Writers Matt Ott and Elaine Kurtenbach contributed.
