Market Volatility Eases Amid Soft Inflation Data, Traders Stay Cautious

Markets received a brief boost on Friday as the preferred inflation measure of the Federal Reserve revealed numbers lower than what experts had anticipated. This news helped to ease some worries about increasing market volatility, especially following a significant shift in policy tone earlier in the week.

The Personal Consumption Expenditures (PCE) price index indicated a 2.4% rise year-over-year in November, falling short of the 2.5% prediction from analysts. When looking at the monthly changes, this index showed a slower growth rate of 0.1%, down from 0.2% in October, also lower than expected projections.

Similarly, the Core PCE, which strips out the more volatile food and energy sectors, held steady at 2.8% annually, a notch below the 2.9% estimate. The monthly core reading also decreased to 0.1%, down from 0.3%, again missing expectations for steady growth.

Despite the softer inflation data released on Friday, market participants exhibited a notable degree of caution, refraining from widespread buying. This hesitance stands in stark contrast to the sharp volatility observed earlier in the week.

Comments from John Williams, the President of the New York Fed, echoed this cautious sentiment. He described the current monetary policies as still being restrictive and categorized the latest inflation updates as encouraging. Nevertheless, he emphasized that the Fed remains committed to reaching its 2% inflation goal.

Williams stated, "I think the economy is a good place, and most importantly for me, monetary policy is well positioned."

Stock Markets Experience Slight Gains, Mindset on Fed Remains Cautious

Following the release of the soft inflation data for November, U.S. equity markets were able to make slight gains, although investor caution lingered due to the Fed's recent hawkish policy changes.

• S&P 500: The broad market index, as tracked by the SPDR S&P 500 ETF Trust SPY, rose from 5,800 to 5,840 by 9:50 a.m. in New York, reflecting a decline of 0.4% for the day.
• Dow Jones: The SPDR Dow Jones Industrial Average ETF DIA increased by 0.4% after the data was released.
• Nasdaq 100: Technology stocks performed better, with the Nasdaq QQQ Trust QQQ gaining 0.6% after bouncing back from a more considerable pre-market dip.
• Real estate emerged as the top-performing sector, with the Vanguard Real Estate ETF VNQ jumping 1.1%.
• Russell 2000: Small-cap stocks experienced the most substantial rebound with the iShares Russell 2000 ETF IWM climbing 0.1%.
• The SPDR S&P Regional Banking ETF KRE reported a rally of 0.8%.

Treasury Yields Decline, Dollar Weakens, and Gold Price Recovers

Bond markets reacted positively as Treasury yields fell after days of sharp rises.

The yield on the 30-year Treasury bond slipped by five basis points to 4.70%, which helped the iShares 20+ Year Treasury Bond ETF TLT increase by 0.8%. This recovery came after the ETF had seen a drop of more than 3% in the previous two days.

In a similar vein, yields on shorter-dated two-year Treasury notes dipped by seven basis points.

The U.S. dollar index, as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, decreased by 0.3%.

Gold prices received a boost from the declining Treasury yields and the weaker dollar, with the SPDR Gold Trust GLD rising by 0.7%.

In the crypto market, the iShares Bitcoin Trust IBIT managed to reduce pre-market losses to 0.9%, as the largest cryptocurrency bounced back above the $95,000 mark.

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Market news and data are provided for informational purposes only and should not be considered as investment advice.

Market, Volatility, Inflation