Federal Reserve Struggles to Cool Inflation to 2%, Stocks Head Lower

Barry Adams
12 Dec, 2024
New York City

Stock market indexes on Wall Street traded down after a measure of wholesale price inflation accelerated in November. 

The S&P 500 index and the Nasdaq Composite declined around 0.3% after the producer price inflation was higher than anticipated. 

Producer price inflation increased 0.4% in November from the previous month and accelerated from 0.3% in October, according to the latest data released by the U.S. Bureau of Labor Statistics. 

Core producer price inflation, which excludes volatile food and energy prices, accelerated to a monthly 0.3% from 0.2% and stalled at an annual 3.4%. 

On Wednesday, the government agency reported consumer prices accelerated in November, largely driven by higher costs of shelter, medical care, and vehicles. 

Investors have bid up stocks in 2024 in the hopes that inflation is on a sustained downward path and likely to reach the Fed's target rate of 2% in the near future. 

However, inflation has stalled near 3% for nearly six months and shows no sign of easing. In addition, most of the slowdown in inflation is reflecting a sharp fall in energy prices, which are not impacted by the Fed's actions. 

Core consumer price inflation is likely to stay above 3% in 2025 and beyond for two reasons: first, because of wage inflation of 4%, and second, most service providers are still passing on higher prices to consumers at a faster than 3% annual rate. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.3% to 6,069.26, the Nasdaq Composite fell 0.4% to 19,962.03, and the Russell 2000 index advanced by 0.5% to 2,394.16. 

The yield on 2-year Treasury notes edged higher to 4.18%, 10-year Treasury notes inched up to 4.30%, and 30-year Treasury bonds increased to 4.52%.

WTI crude oil increased $0.03 to $70.32 a barrel, and natural gas prices edged down 5 cents to $3.32 a thermal unit.

Gold decreased by $10.88 to $2,710.88 an ounce, and silver fell by $0.05 to $31.87. 

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher by 0.05 to 106.77.

 

U.S. Stock Movers 

Chewy Inc. decreased 3.3% to $31.44 after the company announced a fully underwritten stock offering of $500 million by a key shareholder. 

Buddy Chester Sub LLC will receive all proceeds from the offering, and concurrently Chewy said it plans to acquire $50 million of its share directly from the investor. 

Adobe Inc. dropped 10.6% to $491.50 after the software company issued a weaker-than-expected revenue outlook for the fiscal first quarter. 

Total revenue in the fiscal fourth quarter ending in November increased to $5.6 million from $5.0 million, net income rose to $1.68 million from $1.48 million, and diluted earnings per share advanced to $3.79 from $3.23 a year earlier. 

The company estimated fiscal first quarter revenue to range between $5.63 billion and $5.68 billion and earnings per share between $3.85 and $3.89.