Nasdaq Hits Record High as Stocks Rise Amid Mixed Inflation Data

The US stock market surged on Tuesday, with the Nasdaq Composite reaching a record high, as investors digested mixed inflation reports and anticipated the release of the consumer price index update, with the Federal Reserve's interest rate decisions and inflation concerns influencing the market's direction. The context is set against a backdrop of stubborn inflation, with key entities including the Federal Reserve, investors, and major indexes such as the S&P 500 and Dow Jones Industrial Average, and significant actions including the surge of "meme" stocks like GameStop and AMC Entertainment.

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Aqsa Younas Rana
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Nasdaq Hits Record High as Stocks Rise Amid Mixed Inflation Data

Nasdaq Hits Record High as Stocks Rise Amid Mixed Inflation Data

US stocks rose on Tuesday, with the Nasdaq Composite reaching a record high, as investors digested mixed inflation reports and anticipated the release of the consumer price index update on Wednesday. The Nasdaq climbed 0.8% to close at an all-time high of 16,511.18, surpassing its previous record set on April 11. The S&P 500 gained 0.5% to 5,246.68, just shy of its all-time high, while the Dow Jones Industrial Average added 0.3% to 39,558.11.

Why this matters: The performance of the US stock market has a significant impact on the overall economy, influencing consumer confidence and spending habits. As the Federal Reserve navigates inflation concerns and interest rate decisions, the market's reaction will have far-reaching implications for businesses, investors, and individuals alike.

The gains came despite a mixed report on wholesale inflation. The producer price index showed that inflation rose sharply in April, with a revision lower for the March reading. Bill Adams, chief economist for Comerica Bank, stated, "Inflation pressures in the U.S. economy are still substantial and the momentum that built up over the last few years is still rolling along." Adams believes that the April PPI report provides more justification for the Federal Reserve to slow-roll interest rate cuts.

Investors are now eagerly awaiting the release of the consumer price index data on Wednesday morning, which will provide a critical read on the state of inflation in the US. Economists expect the CPI to ease to 3.4% in April on a year-over-year basis, a slight deceleration from March's 3.5% annual gain in prices. The core measure, excluding food and energy, is expected to show a 0.3% gain, with an annual rate of 3.6%.

Fed Chair Jerome Powell expressed hope that inflation would decelerate through the year but acknowledged the slow progress. He stated, "I expect that inflation will move back down on a monthly basis to levels that were more like the lower readings we were having last year... So we're just going to have to see where the inflation data fall out." Powell also reaffirmed that the central bank's next move isn't likely to be a rate increase, despite stubborn inflation.

In other market news, several "meme" stocks, including GameStop and AMC Entertainment, experienced a significant surge on Tuesday, reminiscent of the social media-driven frenzy of three years ago. GameStop shares closed up 60% at $48.75, while AMC surged over 30%. Treasury yields edged lower in the bond market following the mixed wholesale inflation report, with the 10-year Treasury yield slipping to 4.46% from 4.49% late Monday.

The Nasdaq Composite's record close on Tuesday marked a 5.4% gain for the index in May, while the S&P 500 and Dow Jones Industrial Average are up 4.2% and 4.6% respectively this month. The rally has been led by technology companies, including the six trillion-dollar West Coast firms, with Apple stock gaining 10% in May. UnitedHealth and Goldman Sachs, the top-weighted stocks on the Dow, each rose 7% in May as well.

The US stock market's strong performance in May comes after a selloff in April, the worst month for the Dow since September 2022 and the S&P 500 and Nasdaq's worst months since September 2023, due to concerns about lingering inflation and its potential to prop up interest rates. However, investors have exhibited renewed optimism about companies' profit potential, with quarterly earnings revealing the best quarterly profit growth since the second quarter of 2022, according to FactSet.

As investors await the critical consumer price index data on Wednesday, the resurgence of meme stocks like GameStop and AMC Entertainment has added an element of excitement to the market. With major indexes trading at or near record highs, the upcoming inflation report will likely play a significant role in shaping the market's direction in the near term.

Key Takeaways

  • Nasdaq Composite reaches record high of 16,511.18, up 0.8%.
  • US stocks rise despite mixed wholesale inflation report.
  • Investors await consumer price index data on Wednesday.
  • Meme stocks GameStop and AMC Entertainment surge 60% and 30%.
  • Major indexes trade at or near record highs, awaiting inflation report.