Stocks opened higher following this morning's release of the December Consumer Price Index (CPI). However, this initial burst of buying power faded throughout the session as market participants mulled over the mixed report.
Ahead of the opening bell, the Bureau of Labor Statistics said headline inflation was up 0.3% month-over-month in December and 3.4% higher year-over-year. Both figures are higher than what was seen in the November CPI and the annual increase was the largest in three months.
On the other hand, core inflation, which excludes volatile food and energy prices, was up 0.3% on a monthly basis, matching November's figure. Annually, core CPI was 3.9% higher, the smallest year-over-year increase since May 2021.
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"The big picture is that the economic dislocations caused by the pandemic are fading, economic growth is settling into a more normal pace, and labor shortages are much less of an issue, helping bring inflation back to normal," says Bill Adams, chief economist for Comerica Bank. "Slower trend inflation is clearing a path for the Fed to begin lowering U.S. interest rates," Adams adds, which has financial markets expecting rate cuts as soon as March.
Indeed, even with today's hot December CPI reading – and a Bloomberg interview with Cleveland Fed President Loretta Mester where she said March is "probably too early" for rate cuts – market participants refuse to budge from their dovish outlook. According to CME Group's FedWatch Tool, futures traders are pricing in a 68% chance for a quarter-point rate cut at the Fed's March meeting, up from 62% one week ago.
"Given financial market pricing, risks are skewed toward an earlier and faster reduction in interest rates," Comerica's Adams says.
Bitcoin fades after initial pop
Elsewhere, Bitcoin jumped to a nearly two-year high above $49,000 earlier after the Securities and Exchange Commission (SEC) last night approved spot bitcoin ETFs. However, the digital currency was hovering closer to $46,300 when the stock market closed.
A similar reversal was seen in several crypto-related stocks, including Coinbase Global (COIN, -6.7%), Robinhood Markets (HOOD, -3.5%) and Marathon Digital Holdings (MARA, -12.6%).
Paramount stock slumps after new Sell rating
Paramount Global (PARA) was another stock falling sharply Thursday. Shares slid 5.5% after Redburn Atlantic analyst Hamilton Faber downgraded PARA – a member of Warren Buffett's Berkshire Hathaway equity portfolio – to Sell from Hold, citing a "negative tipping point" in linear advertising that is not adequately reflected in analysts' forecasts.
Faber downgraded Warner Bros. Discovery (WBD, -3.9%) to Hold from Buy for the same reason.
As for the main indexes, the Nasdaq Composite eked out a marginal gain at 14,970, the S&P 500 slipped 0.07% to 4,780, and the Dow Jones Industrial Average ticked 0.04% higher at 37,711.
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