NEW YORK – On Tuesday, U.S. stock markets experienced a slight overall increase, buoyed by a positive inflation update, despite some declines in key stocks like Eli Lilly that tempered overall index growth.
The S&P 500 index saw a modest gain of 0.1%, as 75% of the stocks within the index saw an increase. The Dow Jones Industrial Average climbed by 221 points, or 0.5%, while the Nasdaq composite dipped by 0.2%.
Investor sentiment improved following a report indicating that inflation at the wholesale level in the U.S. was lower than economists had predicted for the previous month. This news is particularly encouraging ahead of an upcoming report detailing consumer inflation in December, which examines expenses at gas stations, grocery stores, and auto dealerships.
Recent stubborn inflation readings, combined with an array of unexpectedly strong economic updates, have kept Wall Street stuck in a rut, distancing itself from many all-time highs reached the previous year. There is growing concern that this strong data may prompt the Federal Reserve to adopt a more conservative approach when it comes to offering monetary relief this year through interest rate cuts.
Indicators from the Fed suggest that a cut in interest rates is likely to occur only twice in 2025, a decrease from an earlier forecast of four cuts. Speculation is rampant regarding the possibility that the Fed might not implement any rate cuts this year.
These uncertainties have led to a significant increase in Treasury yields in the bond market, heightening pressure on stock valuations. Yields saw a slowdown in their upward trajectory after the wholesale inflation news. The yield on the 10-year Treasury remained stable at 4.78%, which is a notable increase from 3.65% in September, while the two-year Treasury yield decreased slightly to 4.36% from 4.39%.
On Wall Street, KB Home shares surged by 4.8% after surpassing profit expectations for its latest quarter. Although rising Treasury yields have made mortgages less affordable, CEO Jeffrey Mezger noted that demand for homeownership continues to grow, with market conditions improving compared to last year due to faster home construction times.
H&E Equipment Services saw its stock price more than double, climbing above $90, after United Rentals announced plans to acquire the company for $92 per share in cash. This acquisition places a total valuation of approximately $4.8 billion on H&E, which specializes in renting various construction and equipment products. United Rentals’ shares rose by 5.9% as a result.
Throughout the trading day, indexes fluctuated between gains and losses, largely influenced by declines in several major tech stocks. Nvidia’s stock fell by 1.1%, making it one of the largest contributors to the S&P 500’s downward movement.
The most significant weight on the market came from Eli Lilly, whose shares dropped by 6.6% after projecting lower-than-anticipated revenue for the last quarter of 2024. CEO David Ricks highlighted that the previous quarter’s impressive 45% growth from their diabetes treatments and other products fell short of expectations.
Signet Jewelers also faced difficulties, with its stock plummeting by 21.7% after reporting weaker-than-projected sales during the busy pre-Christmas shopping season. The company’s Chief Financial Officer Joan Hilson indicated that consumers were increasingly opting for lower-priced fashion gifts amid a highly competitive market environment.
Attention will soon turn to several major financial institutions set to report their earnings, including JPMorgan Chase and Wells Fargo, as the earnings reporting season begins. These companies might feel additional pressure to deliver robust results this time around.
If Treasury yields continue on their upward trajectory, the stock market may face challenges unless companies can either increase profit growth significantly or see stock prices decline.
In summary, the S&P 500 increased by 6.69 points to end at 5,842.91, the Dow Jones Industrial Average gained 221.16 to close at 42,518.28, and the Nasdaq composite fell by 43.71 to finish at 19,044.39.
Global markets showed mixed results, with European and Asian indexes experiencing increases in most areas, with a few exceptions. Japan’s Nikkei 225 index dropped by 1.8% after a holiday, while stocks in China posted notable gains, with the Hong Kong market rising by 1.8% and Shanghai by 2.5%.
Additionally, crude oil prices experienced a decline, reversing some of the significant gains seen in recent weeks, influencing inflation rates. Benchmark U.S. crude fell by 1.7% to $77.50 per barrel, while the international benchmark, Brent crude, decreased by 1.3%, settling at $79.92 per barrel.
