Stock Market Update: Encouraging Inflation Data Leads to Mostly Positive Day for Wall Street

On Tuesday, most U.S. stocks experienced gains following optimistic inflation data. However, drops in shares of Eli Lilly and other significant stocks limited the overall indexes' performance.

The S&P 500 saw a modest increase of 0.1%, with around three-quarters of the stocks in the index gaining in value. The Dow Jones Industrial Average rose by 221 points, or 0.5%, while the Nasdaq composite experienced a slight dip of 0.2%.

The positive movement in stocks was largely driven by a report indicating that inflation at the wholesale level was lower than economists expected for the previous month. This report is seen as a promising sign ahead of another anticipated update, which will reveal the inflation experienced by U.S. consumers in areas such as gasoline prices, grocery bills, and vehicle purchases in December.

Recent trends have shown persistent inflation rates and a series of robust economic updates, which have left Wall Street in a bit of a quandary, drawing it further away from numerous record highs achieved last year. Investors are concerned that strong economic performance may lead the Federal Reserve to be less accommodating in terms of interest rate cuts this year.

The Federal Reserve has signaled that it might reduce rates only two times in 2025, a revision from its earlier expectation of four cuts. Speculation has also risen around the possibility that there may not be any rate cuts at all this year.

This uncertainty has contributed to a rise in Treasury yields, creating additional pressure in the stock market. However, yields steadied after the update on wholesale inflation.

The yield on the 10-year Treasury remained steady at 4.78%, where it was last seen Monday, as compared to a lower rate of 3.65% in September. Meanwhile, the two-year Treasury yield, which closely reflects expectations for Federal Reserve actions, eased slightly to 4.36% from 4.39%.

In individual stock performance, KB Home, a homebuilding company, climbed by 4.8% after reporting better-than-expected profits for its latest quarter. Despite rising mortgage rates due to increasing Treasury yields, CEO Jeffrey Mezger noted that buyers are still eager for homeownership and that market conditions have improved compared to last year.

Another notable stock movement was H&E Equipment Services, whose shares more than doubled to exceed $90 after United Rentals announced its plan to acquire the company for $92 per share in cash. This acquisition values H&E at approximately $4.8 billion, including around $1.4 billion of net debt. United Rentals saw its shares rise by 5.9% following the announcement.

Throughout the trading day, the major indexes fluctuated between gains and losses due to declines in some key technology stocks. Nvidia, one of these stocks, fell by 1.1%, ranking as the second-heaviest contributor to the S&P 500's losses.

The stock exerting the most downward pressure was Eli Lilly, which dropped by 6.6% after indicating that it anticipates lower revenue for the last quarter of 2024 than previously forecasted. CEO David Ricks mentioned that the previous quarter's 45% revenue growth from drugs like Mounjaro for diabetes treatment and Zepbound for obesity was not as strong as expected.

Additionally, Signet Jewelers saw a significant decline of 21.7%. The jewelry retailer reported that sales during the holiday season fell short of forecasts, as customers were drawn to lower-priced fashion items amid a competitive shopping environment, according to CFO Joan Hilson.

Ahead of Wednesday's earnings reports from several leading financial institutions, including JPMorgan Chase and Wells Fargo, market observers are notably attentive. Such earnings results typically attract significant attention, and this time, companies may face greater expectations to deliver impressive performance amidst rising Treasury yields.

In summary, overall on Tuesday, the S&P 500 increased by 6.69 points to settle at 5,842.91. The Dow Jones Industrial Average rose by 221.16 points, ending at 42,518.28, while the Nasdaq composite declined by 43.71 points, landing at 19,044.39.

Internationally, stock markets primarily showed increases across much of Europe and Asia, with notable exceptions. Japan's Nikkei 225 index fell by 1.8% after a holiday on Monday, while markets in China demonstrated stronger performance with stocks climbing 1.8% in Hong Kong and 2.5% in Shanghai.

Crude oil prices also saw a setback, dropping after having risen significantly in recent weeks, which had increased inflation pressures. Benchmark U.S. crude fell by 1.7% to $77.50 per barrel, and Brent crude declined by 1.3% to $79.92 per barrel.

stocks, inflation, market