US Equities Take Flight as Inflation Simmers Down


Simpler Trading Team

Jun 13th 2023  .  5 min read

The Market Open – Dawn of the Bulls

As the morning sun rose, so did the US stock market, confidently riding the wave of an overnight buoyant futures market. A spectacular scene unfolded as major equity indexes touched new highs for the year. This growth was spurred by the recently revealed consumer price index (CPI), showcasing a cooled inflation rate of 4% – the lowest in more than two years. This surprisingly positive inflation data hinted at the Federal Reserve holding off on rate hikes for the imminent future. Concurrently, cyclical sectors and small-cap stocks showcased excellent performance, while government bond yields showed an upward trend.

Sector Surfing – A Closer Look at Market Performances

As the market swung to action, it was clear that some sectors found a stronger current to ride on than others. In an interesting twist, cyclical sectors and small-cap stocks, often viewed as more risky, drew in the lion’s share of attention, reflecting an optimistic market sentiment. These sectors registered notable outperformance, sailing ahead of their more risk-averse counterparts.

In the world of government bonds, yields also experienced a sharp uptick. This trend often correlates with increased confidence in the economy and expectations of future growth, with market participants trading the security of bonds for the potential high returns in equities.

On the international front, ripples from China hinted at a possible broader stimulus, a beacon of hope that fueled enthusiasm within Asian markets. This intercontinental wave of optimism reflects the global interconnectedness of today’s markets and the wide-reaching effects of major fiscal policies.

Simultaneously, oil prices fought their way back up after a precipitous drop of nearly 4.5% the previous Monday. They ended the day 3% higher, edging closer to the coveted $70 mark. This surge underscores the vitality of oil in the global economy and the quick market reactions to its price fluctuations.

The Market’s Scorecard – Earnings Unveiled

One can’t discuss the market without delving into the lifeblood of corporations – earnings. Oracle (ORCL) ended the day as one of the top performers within the S&P 500 information technology sector, bolstered by an earnings report that clearly resonated positively with market participants.

Apple (AAPL), however, bucked the overall market trend by closing the day in the red, reeling from a downgrade to Neutral from Buy at UBS. This demonstrates how crucial analyst ratings and earnings reports can be in shaping market sentiment and stock performance.

Macro Matters – Sifting Through Economic Reports

Taking a step back from individual stocks, it’s evident that broader economic conditions are playing a significant role in shaping the market’s direction. Today’s inflation data turned heads, with the Consumer Price Index (CPI) indicating that headline inflation had eased to a cool 4%. This report marked the lowest rate in over two years, signaling an ongoing respite from the specter of runaway inflation.

This slowdown in inflation not only aligns with expert predictions, but it also alleviates some pressure on the Federal Reserve. As a result, the Fed is expected to resist the urge to hike rates at the upcoming meeting, a decision that will undoubtedly have significant implications for the market.

The labor market also received a notable nod, with the surprising strength of recent job market indicators signaling a robust economic backdrop. However, a careful balancing act lies ahead, as the Fed seeks to ensure that its strategies do not overly dampen economic progress.

The day’s developments underscore how economic indicators, from inflation rates to jobless claims, are interwoven with market trends. As these data points sway, so too does the market, in an intricate dance of supply, demand, and expectation.

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Market Close – Bullish Beliefs Drive the Close

As the trading day drew to a close, the chorus of closing bells left echoes of the day’s progress in the hearts and portfolios of traders. The vitality of the U.S. market was apparent in the ascendant journey of key indices.

In an emblematic display of bullish strength, the Dow Jones Industrial Average swelled by 176.10 points, marking its territory at 34,242.43. Each point gained is a testament to the collective effort of its 30 blue-chip member stocks. This impressive rally spoke volumes about the prevailing market sentiment and investors’ confidence in the economic prospects.

Simultaneously, the tech-heavy NASDAQ Composite Index climbed up the ladder as well, showing a noteworthy increment of 106.29 points to reach 13,568.21. The success of this composite underlines the enduring importance of the tech sector in driving the American economy forward.

The broader U.S. market also found cause for celebration, with the S&P 500 Index flourishing. It inked an additional 31.72 points, boosting its total to 4,370.65. This broad-based index, with its 500 large-cap stocks, encapsulates a comprehensive overview of the market’s performance, making its growth a positive sign for a myriad of sectors.

Not to be left in the shadows, the Russell 2000 Index, a benchmark of small-cap American businesses, also reported a leap forward. It advanced by 25.95 points, closing the session at 1,899.16. This surge illustrates the fact that optimism is not just confined to large-cap or tech stocks; it is dispersed across various business sizes, showcasing the depth and diversity of this bullish trend.