Elevated Core Inflation May Keep Market Rally In Check

Barry Adams
13 Jun, 2023
New York City

Stocks traded higher after the inflation index in May declined as expected and crude oil rebounded. 

The S&P 500 index advanced 0.4% and the Nasdaq Composite index jumped 0.6% after tech stocks led market gainers. 

Consumer price inflation in May eased to 4.0% after energy prices weakened and food price inflation slowed but shelter inflation drove the inflation higher. 

Most market participants are expecting the Federal Reserve to stay on the sidelines after the latest inflation report showed progress. 

But the Federal Reserve may focus on core inflation, which has stayed stubbornly high after ten rate hikes in a row since March 2022, and increase rate at the end of the next policy meeting Wednesday. 

Crude oil rebounded after declining for four days in a row after the People's Bank of China cut its short term lending rate by 10 basis points to support weak economic recovery. 

 

Overall CPI Eased In May, Core Inflation Stayed Elevated 

Consumer price index for May eased to 4.0% in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported Tuesday. 

The inflation rate dropped to the slowest pace since March 2021, but prices are still rising at a faster pace than preferred by the Federal Reserve. 

On a monthly basis prices rose 0.1% in May, slower than 0.4% rise in April. 

Core inflation, which excludes food and energy, slowed to 5.3% in May from 5.5% in April, the slowest annual pace since November 2021. 

The shelter index increased 8.0% over the last year, accounting for over 60% of the total increase in all items less food and energy. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.5% to 4,321.57 and the Nasdaq Composite added 1.1% to 13,401.41. 

The yield on 2-year Treasury notes increased to 4.52%, 10-year Treasury notes edged down to 3.72% and 30-year Treasury bonds eased 3.88%. 

Crude oil increased $1.94 to $69.08 a barrel and natural gas prices increased 8 cents to $2.34 a thermal unit. 

 

U.S. Stock Mover

Oracle Corporation jumped 4.8% to $122 after the database developer reported better-than-expected fiscal fourth quarter results. 

GameStop Corp surged 6% to $25.80 after Chairman Ryan Cohen disclosed in a regulatory filing the purchase of 443,842 shares of the video game developer. 

The purchase amounts to $10.8 million based on Monday's closing price.

Exxon Mobil and Chevron Corporation edged up 1.4% after crude oil prices rebounded. 

Home builders were in focus after inflation dropped in May raising hopes that the Federal Reserve will pause its rate hike cycle at the end of a two-day meeting on Wednesday. 

Lennar Corp, Toll Brothers Inc, PulteGroup and NVR Inc advanced between 0.6% and 1.2%.