Nasdaq 100, Dow Jones, S&P 500: Tech Shares Rise on Lower-than-Expected Inflation Data

Highlights

• Lower-than-expected inflation report boosts stock market
• Tech stocks soar as bond yields fall and inflation eases
• Investors are monitoring the US debt ceiling situation

Overview

The major US stock indexes are mixed higher shortly after the cash market opening on Wednesday. The main catalyst behind the volatile price action is a report that showed inflation wasn’t as high as expected. However, worries persist over the  US debt ceiling.

Additionally, the yield on 2-Year Treasury and 10-year bonds fell, which is good news for the stock market. Some tech stocks like Alphabet, Nvidia, and Tesla saw gains in premarket trading. While Airbnb and Twilio saw drops due to weak forecasts.

At 13:50 GMT, the blue chip Dow Jones Industrial Average is trading at 33465.22, down 96.59 or -0.29%. The benchmark S&P 500 Index is at 4126.69, up 7.52 or +0.18% and the tech-heavy NASDAQ Composite is trading 12266.00, up 86.45 or +0.71%.

Earnings Season Continues, Debt Ceiling Worries Persist

Earnings season is continuing on Wednesday, with Disney and Robinhood releasing their results after the close. Ahead of the opening, Roblox and Alcon reported among others.

Investors are keeping a close eye on the U.S. debt ceiling situation. There are concerns that if a resolution isn’t reached by the June 1 deadline, it could result in a default. President Joe Biden held a meeting with congressional leaders on Tuesday. However, there doesn’t seem to have been much progress made yet.

Consumer Prices Rise Slightly Below Expectations

The Consumer Price Index, which measures the cost of goods and services, rose 0.4% in April, meeting expectations, according to a Labor Department report. This equated to an annual increase of 4.9%, slightly less than the 5% estimate. Which is positive news for the Fed’s efforts to quell inflation.

Excluding food and energy categories, core CPI also rose 0.4% monthly and 5.5% from a year ago, both in line with expectations. Increases in shelter, gasoline, and used vehicles pushed the index higher, offset somewhat by declines in prices for fuel oil, new vehicles, and food at home.

Traders Lower Odds of June Hike

Traders lowered the odds of the Fed raising interest rates at the June meeting to 20% after the report. The report provides both good and bad news on the inflation front as the Fed officials weigh their next move on rates.

Airbnb and Twilio Shares Plummet, Celsius Soars

Shares of Airbnb dropped by 13.3% due to a weak outlook for the second quarter and concerns about meeting year-over-year comparables. However, the company still exceeded quarterly earnings expectations.

Twilio’s shares slid 16% in premarket trading as the software company’s revenue forecast fell below expectations. Dutch Bros also tumbled by 7.6% after its first-quarter same-store sales and revenue came in lower than expected.

On the other hand, Celsius Holdings jumped by 11.1% after a strong earnings report, and Alcon rose by 5.1% after beating first-quarter expectations. Roblox’s shares fell by 8.1% due to higher-than-expected losses per share, and Occidental Petroleum’s shares declined by 1.5% as the company’s quarterly earnings missed expectations.

Akamai Technologies saw its shares rise by nearly 5% in premarket trading after reporting better-than-expected earnings and revenue for the first quarter and raising its full-year profit guidance.

Short-Term Forecast:  Investors Cautiously Optimistic

The news of a lower-than-expected inflation rate, falling bond yields, and gains in tech stocks such as Alphabet, Nvidia, and Tesla are generally bullish indicators for the stock market.

Additionally, strong earnings reports from Celsius Holdings and Alcon further support bullish sentiment. However, weak forecasts from Airbnb and Twilio, along with declines in the shares of Roblox and Occidental Petroleum, may be viewed as bearish signals.

Overall, the market seems to be cautiously optimistic, as traders lower the odds of the Fed raising interest rates at the June meeting to 20% after the positive inflation report. Worries about the debt ceiling could also put a lid on any meaningful rally.