Stocks Rise as Producer Inflation Comes in Cool; Fed Rate Cut Odds Increase

Stocks rose on Tuesday, January 15, 2025, as investors welcomed a tamer-than-expected reading on producer prices, which eased concerns about sticky inflation and the potential for further rate cuts by the Federal Reserve. The Dow Jones Industrial Average (DJIA) gained 0.5%, while the S&P 500 Index (SPX) rose 0.1%, and the Nasdaq Composite (IXIC) fell 0.2%. The producer price index (PPI) for final demand rose 0.2% in December, below the 0.4% forecast, while core PPI remained unchanged on a monthly basis.



The cooler-than-expected PPI data provided some relief to investors, who have been grappling with uncertainty over the Fed's policy direction. According to CME Group's FedWatch tool, expectations for a rate cut on January 29 increased to 3%, up from 2% before the PPI data was released. Markets are now pricing in a higher likelihood of a rate cut in the coming months, with odds of a cut in March at 20% and in May at 34%.

Investors are also awaiting the release of the consumer price index (CPI) on Wednesday, which is expected to provide further insight into the Fed's next move on interest rates. Economists expect the overall CPI to rise 0.3% in December, with core prices increasing 0.2%. On a 12-month basis, CPI inflation is expected to tick up to 2.9%, while core inflation is forecast to hold steady at 3.3%.



Despite the positive market reaction to the PPI data, some experts caution that investors should not overlook other factors driving the stock market. Bret Kenwell, U.S. investment analyst at eToro, noted that while rate cuts do matter, they are not the only factor influencing the stock market. Kenwell pointed out that despite wild fluctuations in rate-cut expectations throughout 2024, the S&P 500 rallied more than 20% and hit new record highs in 10 out of 12 months. This suggests that investors are focusing on other factors, such as economic growth and corporate earnings, in addition to interest rate policy.

In conclusion, the stock market today saw indexes tick higher as producer inflation came in cool, easing concerns about sticky inflation and increasing the likelihood of Fed rate cuts in 2025. However, investors should remain cautious and consider other factors driving the market, as rate cuts alone do not determine the overall momentum of the stock market. As the market awaits the release of the CPI data on Wednesday, investors will continue to monitor inflation trends and the Fed's policy response.