U.S. stocks diverged Wednesday as investors digested new data showing inflation is not moving toward the Fed’s 2% target in October.
After hitting a record high on Tuesday, the S&P 500 (^GSPC) fell about 0.3%, while the Dow Jones Industrial Average (^DJI) was above its flat line. The tech-heavy Nasdaq Composite (^IXIC) fell about 0.9%.
The mood is muted in the wind-down for the Thanksgiving holiday, which will see the market closed on Thursday and close early on Friday. But the Fed has taken it back after being somewhat eclipsed by the debate about the impact of the rate plan of President-elect Donald Trump and the Cabinet selection.
The latest reading from the Federal Reserve’s preferred inflation gauge showed average prices rose in October from the previous month, raising questions about whether progress toward the central bank’s 2% target has stalled.
The core Personal Consumption Expenditure (PCE) index, which excludes food and energy costs and is closely monitored by the central bank, rose 0.3% from the previous month in October, in line with Wall Street expectations for 0.3% and reading from September. Over the previous year, core prices rose 2.8%, in line with Wall Street expectations but above the 2.7% seen in September.
Traders now see a roughly 34% chance the Fed will hold rates steady at the meeting, up from about 24% a month earlier, according to the CME FedWatch Tool.
Also out Wednesday, the second estimate of third quarter GDP was unchanged, showing the US economy grew at an annualized rate of 2.8% in the period. Meanwhile, weekly jobless claims continued to decline with 213,000 jobless claims filed in the week ending November 23, down from 215,000 the previous week.
Trump on Tuesday tapped Jamieson Greer — a veteran of his first term — to be the U.S. trade representative. Given Greer was heavily involved in Trump’s original Chinese tariffs, Wall Street assessed what his role could mean for the new broad tariffs promised to the US’s top trading partners.
On the corporate front, shares of Dell ( DELL ) fell more than 10% after quarterly revenue fell amid weak PC demand. Shares of Peer HP ( HPQ ) also fell after earnings, also down more than 10%.
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Dell shares sink as executives warn AI spending ‘won’t be linear’
Shares of Dell Technologies ( DELL ) fell more than 13% early Wednesday after the company took a cautious approach to forecasts for investors while warning that AI growth “will not be linear.”
“AI is a powerful opportunity … and interest in our portfolio is very high with no signs of slowing,” Dell COO Jeffrey Clarke said on a call with investors Tuesday night after the company’s earnings report for the October period. “That said, this business will not be linear, especially as customers navigate the ever-changing silicon road map.”
Dell’s AI server revenue fell 9% in the third quarter from the prior period.
The nonlinear growth, coupled with a slower-than-expected recovery in the PC market, led the company to drop the midpoint of some guidance for annual revenue to $96.1 billion from $97 billion from last quarter.
However, Dell executives and analysts point to expected demand for Dell’s AI servers using Nvidia’s (NVDA) latest Blackwell AI chips.
Read more about Dell’s latest earnings results and its role in the AI market here.
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Key inflation gauges showed price increases remained flat from the previous month
The latest reading from the Federal Reserve’s preferred inflation gauge showed average prices rose in October from the previous month, raising questions about whether progress toward the central bank’s 2% target has stalled.
The core Personal Consumption Expenditure (PCE) index, which excludes food and energy costs and is closely monitored by the central bank, rose 0.3% from the previous month in October, in line with Wall Street expectations for 0.3% and reading from September.
Over the previous year, core prices rose 2.8%, in line with Wall Street expectations and above the 2.7% seen in September. On an annual basis, overall PCE increased by 2.3%, a pickup from the 2.1% seen in September.
Read more here.
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JPMorgan issues S&P 6,500 target for 2025 as ‘US exceptionalism’ continues
Other Wall Street strategists see a strong backdrop for the U.S. economy and a picture of higher stock-distributing companies’ earnings next year.
JPMorgan’s global equity strategy team led by Dubravko Lakos-Bujas sees the S&P 500 (^GSPC) reaching 6,500 by the end of 2025, joining Goldman Sachs and Morgan Stanley, which have issued similar targets. The target represents an increase of 8% from the current level.
Lakos-Bujas wrote that continued “US exceptionalism,” continued earnings growth, and interest rate cuts from the Federal Reserve will be a tailwind for stocks next year. He said the U.S. will remain a “global growth engine with an expanding business cycle, a healthy labor market, widespread AI-related capital spending, and strong capital market prospects and deal activity.”
He added, “heightened geopolitical uncertainty and evolving policy agendas introduce unusual complexity to the outlook, but the opportunities may outweigh the risks. The benefits of deregulation and a more business-friendly environment can be underestimated along with the potential to unlock productivity and deployment capital.”
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Stocks wobble ahead of inflation print
U.S. stocks rested near record highs on Wednesday as investors awaited readings on the Federal Reserve’s favorite inflation gauge to hint at the path of interest rates.
After hitting a record high on Tuesday, the S&P 500 (^GSPC) fell about 0.2% at the open while the Dow Jones Industrial Average (^DJI) rose 0.1%. The tech-heavy Nasdaq Composite (^IXIC) fell about 0.3%.
The October print of the Fed’s preferred measure of inflation, the Personal Consumption Expenditure index, will be released on Wednesday morning at 10 a.m. ET. The focus is on whether inflation has stopped.
Economists expect the annual “core” PCE – which excludes food and energy – to have clocked in at 2.8% in October, up from 2.7% seen in September.
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Weekly jobless claims fall, GDP steady
Weekly jobless claims rose less than expected last week, and hit a seven-month high, as the impact of labor strikes and severe weather continued to ease.
New data from the Labor Department showed 213,000 initial jobless claims were filed in the week ending Nov. 23, down from 215,000 the previous week and below the 215,000 economists had expected.
Meanwhile, the number of continuous applications for unemployment benefits reached 1.9 million, up 9,000 from the previous week and the highest level since November 2021.
Elsewhere in economic data, the second estimate of third quarter GDP was unchanged, once again showing the US economy growing at an annual rate of 2.8%.
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good morning Here’s what happened today.
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About potential Trump tariffs
Shares of automakers General Motors ( GM ) and Ford ( F ) retreated on Tuesday after Trump threatened tariffs on China, Mexico, and Canada.
GM lost 9%, while Ford fell 3% as both companies have a strong presence in Mexico.
But automakers aren’t the only companies affected by the tariffs, of course.
Think computers and T-shirts!
Here’s what the CEO of HP Inc. had to say. (HPQ) Enrique Lores and Abercrombie & Fitch (ANF) CEO Fran Horowitz on the topic of rates.
Enrique Lores
“Some of that (potential tariff costs) should go to the consumer given what the overall margin we have in the category. But again, we have to wait and see what the final tariffs are for us to determine what exactly the plan will be.”
Frank Horowitz
“If we really understand what is happening, we will have to make some adjustments, and we will adjust accordingly. This is exactly what we did in 2018 when we faced the same challenge. In 2024, we will not receive more than 5% or 6% of US receipts from China We’re looking at it country by country, but the agility we’ve built into our supply chain will really help us manage through this.”
