Key Takeaways:
S&P 500 futures climbed in early European trading after June consumer prices rose less than forecast, easing concern that the Federal Reserve would need to resume rate increases.
"The inflation print removes the most immediate risk of a rate hike," said Christopher Waller, Federal Reserve governor, in prepared remarks Monday. Waller had warned that a hot reading could trigger tightening, making the softer data a relief for equity markets.
Futures on the S&P 500 rose 0.5%, while Nasdaq 100 contracts gained 0.6% and Dow Jones Industrial Average futures added 0.4%. The moves follow a session where the S&P 500 closed at 5,642, down 0.3% as traders positioned ahead of the CPI release. The yield on the 10-year Treasury note fell four basis points to 4.28% after the data, while the dollar index slipped 0.2%.
The data marks the first decline in headline inflation in six years, according to economists, following a surge that had pushed consumer prices to a three-year high. The softer reading bolsters the case for the Fed to hold its benchmark rate at the current 5.25% to 5.5% range through its next meeting in September. In a separate release, the National Federation of Independent Business said its small-business optimism index rose 2.1 points in June to 97.4, above the 95.7 consensus estimate, signaling that Main Street sentiment is improving even as borrowing costs remain elevated.
For equity investors, the inflation surprise reduces the probability of a hawkish Fed pivot that could compress valuations. The S&P 500 trades at about 21 times forward earnings, a multiple that had come under pressure as bond yields climbed. With the 10-year yield retreating below 4.3%, the rate-sensitive technology and real estate sectors are likely to benefit most in the near term. Traders will now turn their attention to corporate earnings, with Morgan Stanley and Johnson & Johnson among companies reporting Wednesday.
This article is for informational purposes only and does not constitute investment advice.
