US stocks end higher as inflation data cements bets on rate hike pause

The S&P 500 and Nasdaq reached their highest closes in 14 months on Tuesday after data showed consumer prices rose modestly in May, boosting bets that the Federal Reserve will not raise interest rates on Wednesday.

Nvidia jumped 3.9 percent, becoming the first chipmaker to end a trading session with a market capitalization above $1 trillion after smaller rival Advanced Micro Devices gave an update on its artificial intelligence strategy that failed to impress investors. AMD dropped 3.6 percent.

Nvidia briefly joins $1T valuation club

Stocks advanced after a U.S. Labor Department report showed the consumer price index (CPI) rose 0.1 percent last month following a 0.4- percent jump in April, with core inflation unchanged at 0.4 percent.

On a year-on-year basis, headline inflation increased by a less-than-estimated 4 percent, reflecting declines in the cost of energy products and services, including gasoline and electricity.

US consumer inflation eases for 11th straight month

“If the Fed was looking for data to point to say, ‘We’re going to pause in June,’ I think they got it today,” said Liz Young, head of investment strategy at SoFi in New York.

“But it’s another one of those that you can cut whichever way you want to make your case. If you want to be bullish, you say inflation is down more than 50 percent since its peak. If you want to be bearish, you can say inflation is still more than twice the Fed’s target,” Young said.

Traders have priced in a 93c-percent hance that the U.S. central bank will hold interest rates at the 5-5.25 percent range on Wednesday, and 62 percent odds of 25-basis-point hike in July, according to the CME Fedwatch tool.

The benchmark S&P 500 has recovered about 22 percent from its October 2022 closing low, fueled in large part by gains in market heavyweights such as Apple Inc, Nvidia Corp and Tesla Inc. More recently, sectors such as energy and materials have climbed, as well as small-cap stocks.

S&P 500 and Nasdaq close at highest since April 2022

U.S.-listed shares of Chinese companies rose after China’s central bank lowered its short-term lending rate for the first time in 10 months. Alibaba Group gained 1.9 percent and JD.com jumped 3.5 percent.

The S&P 500 climbed 0.69 percent to end the session at 4,369.01 points.

The Nasdaq gained 0.83 percent to 13,573.32 points, while Dow Jones Industrial Average rose 0.43 percent to 34,212.12 points.

Volume on U.S. exchanges was relatively heavy, with 11.6 billion shares traded, compared to an average of 10.6 billion shares over the previous 20 sessions.

Ten the 11 S&P 500 sector indexes rose, led by materials, up 2.33 percent, followed by a 1.16- percent gain in industrials.

The small-cap Russell 2000 index jumped 1.2 percent to a three-month high.

Intel Corp gained 2.5 percent after a report the chipmaker is in talks with SoftBank Group Corp’s Arm to be an anchor investor in its initial public offering.

Bunge Ltd rallied 2.5 percent after the U.S. grains merchant and Glencore-backed Viterra said they were merging to create an agricultural trading giant worth about $34 billion, including debt.

The most traded stock in the S&P 500 was Tesla Inc, with $40.8 billion worth of shares exchanged during the session. The shares rose 3.55 percent.

Advancing issues outnumbered falling ones within the S&P 500 by a 4-to-1 ratio.

The S&P 500 posted 43 new highs and no new lows; the Nasdaq recorded 135 new highs and 47 new lows.