Stock Traders Bracing for The Worst Shrug Off Hot CPI – US Market Wrap

Stocks rose to a new high as the latest inflation data did little to change bets that the Federal Reserve will cut interest rates this year, even if officials maintain a more cautious stance for now.

An equity decline that lasted only a few minutes gave way to a rebound that sent the S&P 500 up more than 1%. Despite the fact that the consumer price index continued to show signs of “stickiness,” the overall report only slightly exceeded economist expectations. While this is not ideal for a central bank attempting to get close to its 2% target, the CPI did not surprise traders fearing another post-inflation rout.

The S&P 500 closed around 5,175. On Tuesday, technology led gains, with Oracle rising 12% on the back of increased cloud computing bookings. Nvidia gained more than 7%. Boeing increased its 2024 losses by nearly 30%. Treasuries remained lower following a $39 billion sale of ten-year notes and an increasing supply of new corporate bonds.

Consider the Cboe One-Day Volatility Index, a measure of cost in S&P 500 options with maturities of no more than 24 hours, to get a sense of how traders were prepared for Tuesday’s CPI report. The gauge closed Monday at its highest level since October, indicating heightened anxiety.

According to Citigroup analysts, the options market was more concerned on Monday with a potential large S&P 500 move following the CPI than with the Fed’s rate decision next week. That was based on the at-the-money straddle strategy, which involves buying an equal number of calls and puts with the same strike price and expiration.