Although annual “core” CPI inflation fell again to 3.8% – its lowest in almost three years – it was a tenth of a percentage point above forecast, the headline inflation rate ticked up surprisingly to 3.2% and monthly readings were sparky.
Many blamed statistical quirks in official models for the early-year stickiness, with rent estimates and gasoline exaggerating the data and services inflation excluding shelter – closely watched by the Federal Reserve – better behaved.
But interest rate futures shaved expected Fed easing expectations for the year nonetheless and both two and 10-year Treasury yields pushed higher – the latter up by more than 5 basis points to 4.15%, where it sat early on Wednesday.
A poorly received 10-year note auction – partly because of the CPI surprise – possibly goosed that move. And some $22 billion of 30-year bonds go under the hammer later on Wednesday.
But the artificial intelligence obsession in stocks was reinvigorated by an AI-infused results beat from Oracle, whose shares surged 12% as it said it was due to make a joint announcement with AI bellwether Nvidia.
Nvidia stock, in turn, recovered much of the past week’s losses and surged 7%.
What’s more, shares in another AI darling, Arm Holdings, the British chip designer backed by Softbank Group, gained 2% as markets braced for increased trading activity following the expiration of the lockup period tied to its blockbuster initial public offering last September.
All of which helped lift S&P500 to a new closing high despite the inflation cloud and futures held those gains on Wednesday.
Although with markets still pricing Fed rate cuts even with long-term inflation expectations settling above its 2% target, there may be argument that stocks are beginning to like an economy running slightly hot.
Bank of America on Tuesday upped its S&P500 profit growth forecast for this year to 12%, backing its raised year-end target for the index to 5,400.
Other more skeptical investors remain wary, with GMO’s Jeremy Grantham this week describing the AI “bubble” as “a new bubble within a bubble.”
