(Thursday market close) Stubborn U.S. inflation data sent Treasury yields to new two-month highs and clipped major U.S. indexes Thursday after yesterday's record finish. A surge in weekly jobless claims also startled market participants, but both reports had silver linings and losses weren't dramatic.
First the raw data: September's Consumer Price Index (CPI) climbed 0.2% versus consensus views of 0.1%, while annual inflation climbed 2.4% versus the 2.3% consensus from Trading Economics. Core CPI, which excludes volatile food and energy, rose 0.3%, above the 0.2% consensus and unchanged from 0.3% in August, while core annual CPI rose 3.3%, up from 3.2% the prior month. Supercore CPI, which strips out housing, rose 0.4%.
A deeper dive revealed some positive takeaways. Annual CPI slowed from August's 2.5%, and the shelter component rose just 0.2%, perhaps evidence that housing cost inflation is finally slowing. Also, the three-month annualized CPI change through September is now 2.11%, just above the Federal Reserve's 2% target. That could help explain why futures trading still builds in high odds of a 25-basis-point rate cut next month.
Even so, investors fled longer-term Treasuries again and yields popped to new two-month highs. The benchmark 10-year Treasury note (TNX) yield, which fell more than 100 basis points between April and September, has retraced about half that decline over the last three weeks in a fierce rally sparked partly by a surge in labor and services readings. Yields rise when Treasuries fall.
"Rate cut probabilities have been going lower, and yields have been pushing higher, primarily driven by strong economic data," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "As long as the rise in yields is being driven by stronger-than-expected economic data, and not hotter inflation data, then the bulls should be OK."
Rising Treasury yields can hurt stocks by raising borrowing costs for consumers and businesses, but they also tend to accompany strong economic growth.
Initial jobless claims rose dramatically last week to 258,000, well above the consensus of 230,000. That could reflect Hurricane Helene's impact, while coming weeks' reports could include effects from Hurricane Milton tearing through Florida. While those events are tragic, it's possible the jump in claims could be temporary, not a sign of widespread labor market weakness. Historically, layoffs accompanied by rising prices is a bearish recipe, but it's important not to overemphasize data from a single week or month.
Here's where the major benchmarks ended:
• The S&P 500® index (SPX) lost 11.99 points (–0.21%) to 5,780.05; the Dow Jones Industrial Average® ($DJI) fell 57.88 points (–0.14%) to 42,454.12; and the Nasdaq Composite® ($COMP) dropped 9.56 points (–0.05%) to 18,282.05.
• The 10-year Treasury note yield (TNX) rose three basis points to 4.1%, the highest since July 31 and closing in on the 100-day moving average.
• The Cboe Volatility Index® (VIX) was flat at 20.87.
Stocks on the move
The poorest performers today were rate-sensitive sectors like staples and real estate, along with small caps. Almost every S&P sector fell, though energy got a boost from crude's gains related to Milton and Middle East tension. On a technical note, the SPX managed to close above the old all-time high of 5,762 that it pushed through Wednesday, possibly evidence that sellers didn't want to test the envelope.
The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:
• Delta Airlines (DAL) dipped 1.06% after the company missed analysts' earnings per share (EPS) expectations but beat consensus on revenue. EPS guidance for this quarter met consensus but revenue fell short. The CrowdStrike (CRWD) outage cost Delta $500 million, Delta's CEO told CNBC, but excluding that impact, there was sequential improvement and holiday bookings look strong.
• Tesla (TSLA) rose 0.95% ahead of tonight's "We, Robot" event at which it's expected to introduce its Robotaxi, or "Cybercab." Where the stock goes tomorrow could depend on what Tesla says about timing of its self-driving cars and perhaps any partnership hints it drops. Shares of Uber (UBER) and Lyft (LYFT) might see an impact, as they'd potentially compete with any self-driving Tesla technology.
• Pfizer (PFE) sank 2.82% as the swirl of headlines continued following news that activist investor Starboard Value has taken a stake and wants changes at the drug maker. Today, two former Pfizer leaders told Reuters they won't support Starboard and threw their support behind current PFE Chairman and CEO Albert Bourla, media reports said.
• Advanced Micro Devices (AMD) plunged 4% after unveiling new products including a data center AI chip at its "Advancing AI" event. Pressure on shares could reflect profit-taking on the news after AMD climbed heading into the launch. Also, Barron's reported the chip isn't as powerful as Nvidia's (NVDA) Blackwell product.
Earnings season unofficially starts tomorrow morning as JPMorgan Chase (JPM) and other banks report. Bank earnings aren't expected to be too impressive, judging from analysts' consensus. JPM'sCEO Jamie Dimon usually delivers thoughts on the broader economy in JPM's press release, a possible market-moving factor.
Wells Fargo (WFC) and BlackRock (BLK) also report tomorrow morning. Bank earnings will likely be watched for guidance, as net-interest income might now be edging back up thanks to the recent rally in Treasury yields. Trading activity, mortgage demand, and consumer credit are other issues to watch.
Analysts expect 4.2% S&P 500 EPS growth in the third quarter, according to research firm FactSet. That's down from around 8% at the start of the third quarter. However, past earnings seasons often featured actual results outpacing estimates.
"With stocks near all-time highs and valuation high, it's really going to come down to earnings," Schwab's Peterson said. "Currently, FactSet is projecting 4.2% earnings growth for Q3, 14.6% for Q4, and around 15% in 2025. Are estimates too high? Too soon to say."
The hits keep coming: PPI up next
Before leaving CPI behind, it's worth noting that the longer-term trend remains lower. Also, owner's equivalent of rent, a large contributor lately, ticked down in September. That's a statistic that tries to measure housing costs for homeowners.
Rate cut odds also might have remained high today despite CPI because the Fed's favored inflation report is the Personal Consumption Expenditures (PCE) price index, due later this month. That measure has trended below CPI in part because it's less weighted toward shelter.
The September Producer Price Index (PPI) is due at 8:30 a.m. ET tomorrow. Here are expectations, according to Trading Economics:
Headline monthly PPI: 0.1% versus 0.2% in August
Core monthly PPI: 0.2% versus 0.3% in August
Headline annual PPI: 1.6% versus 1.7% in August
Core annual PPI: 2.7% versus 2.4% in August
Atlanta Fed President Raphael Bostic said he's open to cutting interest rates by 25 basis points or pausing at the Fed's meeting next month depending on how the economic outlook develops. "I am totally comfortable with skipping a meeting if the data suggests that's appropriate," Bostic told The Wall Street Journal. Referring to this morning's CPI, he said, "This choppiness to me is along the lines of maybe we should take a pause in November. I'm definitely open to that … I think we have the ability to be patient and wait and let things play out a little longer … There are elements of today's report which I think validate that view."
While hurricane damage might help explain today's weekly jobless claims bounce, continuing claims also climbed sharply to 1.861 million from 1.819 million the prior week. Though September's nonfarm payrolls report delivered massive gains, jobs reports prior to that were relatively light, perhaps why continuing claims bounced. With weekly claims, it helps to zero in on the four-week average of 231,000, a relatively benign amount. Recessions typically see 300,000 or more.
A $22 billion 30-year Treasury bond auction today found abundant buying interest but yields on the 30-year bond rose five basis points even as the yield on the rate-sensitive 2-year Treasury note slipped. Thursday's auction followed relatively light demand for a 10-year note auction yesterday. If demand dwindles, it might push yields higher, a potential roadblock for the stock market and especially for more yield-sensitive sectors..
Late today, futures traders build in an 84% chance rates will fall 25 basis points at the Federal Open Market Committee (FOMC) meeting on November 6–7, based on the CME FedWatch Tool. There's a 16% chance of no change from current rates.
