Wall Street opened sharply higher after US inflation figures for November showed that price growth moderated more than expected. Technology stocks on the Nasdaq Stock Exchange rose about four percent immediately after the markets opened, but the rise slowed quickly, before the index rose cautiously at the end of the trading day:
- The S&P 500 index, which consists of the 500 largest listed companies in the United States, rose 0.73 percent on Tuesday.
- The Dow Jones Industrial Average, which consists of 30 handpicked stocks believed to be important, rose 0.30 percent.
- The Nasdaq Composite Index, which is dominated by technology companies, rose 1.01 percent.
The increase in the US Consumer Price Index, which was reported before the exchanges opened, closed at 7.1 percent year-on-year in November. In advance, growth of 7.3 percent was expected. In October, inflation was 7.7 percent.
The headline inflation rate is now at its lowest since December of last year, dented particularly by lower energy prices. The energy index fell 1.6 percent on a monthly basis, affected by a significant drop in fuel prices. On the other hand, food prices increased by 0.5 percent on a monthly basis and up to 10.6 percent on a yearly basis.
Fear that Musk is distracted
Low inflation gives equity investors hope that a peak in interest rates is at hand, once again fueling buying interest on major US stock exchanges on Tuesday. Right after the exchanges opened, indices rose sharply, but then things got a lot more volatile. Because as the trading day progressed, the mood subsided, and by 6.30pm there was only a cautious rally to be seen. Then the markets rose again, particularly the high-tech Nasdaq.
While heavyweights like Amazon and Apple were lifted, Tesla stock was among those that stood out with a strong fall. At times, the price drop was more than six percent, which also ended on Monday. As a result, Tesla’s share price has fallen to around $160, a level it hasn’t been since fall 2020.
Bloomberg wrote on Tuesday that Tesla’s main problem today is lower demand in China, which could result in not much additional growth. Additionally, there is growing dissatisfaction with Tesla’s chief owner Elon Musk’s purchase of Twitter and this is drawing his attention away from Tesla.
My biggest concern is the slowdown in China, Matt Maley tells Bloomberg.
Mali is an equity strategist at Miller Tabak, adding:
– As long as Elon Musk spends a lot of time on Twitter, Tesla’s stake will be in focus.
Bloomberg reports that Tesla’s stock price has now fallen to a level where the stock is trading at 29 times estimated earnings per share. Although that’s higher than the average headline figure for the S&P 500, where the average stock trades for 17 times future earnings, Tesla’s pricing is now at its lowest since its 2010 IPO.
On the part of Musk himself, Tesla’s stock market crash means his fortune will take a hit, too. At its peak, his total wealth was estimated at $340 billion. This year alone it’s down 100 billion and it’s now From just over 163 billionAccording to Bloomberg. It also means that he has lost the top spot in the Bloomberg Billionaires Index, which is now held by Bernard Arnault. Arnault’s values are associated with fashion and luxury giant LVMH.
Interest rates fell immediately
The fact that the increase in the CPI was less than expected led to strong market reactions:
- US interest rates have fallen dramatically. The ten-year yield, which is the interest rate on US government debt for ten years, fell by 13 basis points shortly after the numbers came out, dropping to 3.48 percent. The two-year interest rate fell by 12 basis points to 4.27 per cent.
- Wall Street rose sharply in the first hour, with the Nasdaq technology index leading the way with a rise of more than three percent. The broad S&P 500 rose more than 2%, while the industry heavy Dow Jones rose less than 2%.
- The dollar immediately weakened against several currencies, including the Norwegian krone. One dollar was priced at NOK 9.92 just before the figures were published, while shortly thereafter it cost NOK 9.78.
Usually the dollar weakens when government interest rates fall, and vice versa – when interest rates rise, the dollar strengthens. With US interest rates rising sharply from record low pandemic levels, the dollar has strengthened against most of the world’s currencies.
At the same time, interest rate expectations for the Fed’s policy rate also eased after the inflation figures were released. The market is now pricing in the potential majority of a 0.5 percentage point rate hike on Wednesday, and another 0.25 percentage point jump in February. Before the inflation figures were shown, the probability odds were priced up 0.5 percentage points in February as well. At the same time, it is estimated that the US central bank will cut interest rates in the middle of next year.
The inflation figures were released on the same day the Fed’s interest rate committee begins its last interest rate meeting of the year, which lasts for two days. On Wednesday evening Norwegian time, the Federal Reserve will present its interest rate decision, and it is widely expected that the key US interest rate will be raised by 0.5 percentage point. Many economists pointed out that today’s inflation figures will likely not affect the interest rate decision now, but it will affect the signals that Central Bank Governor Jerome Powell gives about further development of interest rates in the press conference he holds after the decision is made. Foot.
So far this year, the Fed has raised interest rates six times, and the last four rate jumps were 0.75 percentage points. The key interest rate in the US is now in the range of 3.75-4.0 per cent.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For additional terms look here.
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