On Wednesday, the Bureau of Labor Statistics posted consumer price index rose by 0.2% in August. It increased by 2.5% year-over-year. This rate is still above the Fed’s 2.0% target but should be enough for the Fed to cut rates.
For several months, the media was spinning a story on the Fed cutting rates by 50 bps or more. Stocks need a steep cut to encourage speculators to keep trading. When rates are lower, borrowing costs fall, stimulating demand.
At first, markets speculated that the CPI report would not give investors the 50 bps cut. That pushed mega-cap stocks like Alphabet (GOOG), Apple (AAPL), and Microsoft (MSFT) lower. As trading progressed yesterday, buyers stepped in.
Passive investors bought the S&P 500 ETF (SPY), Nasdaq (QQQ), and the Russell 2000 (IWM). Nvidia (NVDA) stock gained 8.15% on the day. Broadcom (AVGO) continued to bounce back from its post-earnings selloff, adding 6.79%.
Energy stocks continued their downtrend. Marathon Petroleum (MPC) lost 3.02% to close at $158.61. Valero Energy (VLO) lost 2.34% to close at $132.90. VLO stock peaked in April and then kept falling steadily. Every attempted rebound is followed by profit-taking.
Markets left out energy stocks during Wednesday’s rally. Eventually, weak oil prices will lead to lower output and stronger demand. The aforementioned energy stocks, plus firms like Devon Energy (DVN) and Occidental Petroleum (OXY), will recover.
