© Reuters. FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., October 23, 2023. REUTERS/Brendan McDermid/File Photo
By Sinéad Carew and Sruthi Shankar
(Reuters) -U.S. stocks rose slightly on Wednesday, as fresh inflation data reinforced investor hopes that the Federal Reserve may be done raising interest rates, while retail stocks were boosted by an upbeat forecast from Target.
Target’s shares surged 17.4%, on course for their biggest percentage gain in more than four years, as the big-box retailer forecast fourth-quarter profit largely above expectations on easing supply-chain costs.
The bright outlook lifted shares of other retailers including Macy’s (NYSE:) and Kohl’s (NYSE:), while the consumer staples index, which includes Target, was among the top sector gainers.
Stocks had rallied on Tuesday after a softer-than-expected consumer price index (CPI) reading boosted optimism that the Fed may be able to avoid raising rates further.
Additional data on Tuesday showed the biggest decline in producer prices in 3-1/2 years in October on the back of cheaper gasoline, offering more evidence of easing price pressures.
On Wednesday, retail sales data showed a smaller-than-expected decline of 0.1% in October, against forecasts of a 0.3% fall, according to economists polled by Reuters.
“Those two data points reaffirmed the message from Tuesday that the Fed seems to be navigating the soft landing quite well,” said Ronald Temple, chief market strategist at Lazard (NYSE:).
After the big move in Wall Street’s three major indexes in the previous session, Temple said Wednesday’s data “doesn’t change the narrative.”
However, he pointed to ongoing gains in the index, with the small cap index last up 0.5% a day after closing 5.4% higher, as the prospect of stalling rate hikes comforts smaller companies, which are more dependent on floating rate loans.
“Yesterday was a tremendous move in small caps with nice follow through today,” said Temple.
The rose 175.43 points, or 0.5%, to 35,003.13, the S&P 500 gained 13.96 points, or 0.31%, at 4,509.66 and the added 31.97 points, or 0.23%, at 14,126.35.
The benchmark S&P 500 and the tech-heavy Nasdaq had posted their biggest daily percentage gains in more than six months on Tuesday, after the consumer prices data.
Money market traders have fully priced in odds that the U.S. central bank will keep rates steady in December, as per CME Group’s (NASDAQ:) Fedwatch tool. They also see the first rate cut of the cycle to kick off in May 2024.
Investors were also waiting for the first meeting in a year between U.S. President Joe Biden and Chinese leader Xi Jinping on Wednesday for talks that may ease friction between the adversarial superpowers on military conflicts, drug-trafficking and artificial intelligence.
Further aiding the mood, the U.S. House of Representatives passed a temporary spending bill that would avert a government shutdown, with broad support from lawmakers from both parties.
To prevent a shutdown, the Senate and Republican-controlled House must enact a legislation that Biden can sign into law before current funding for federal agencies expires at midnight on Friday.
Among individual stocks, Walt Disney (NYSE:) gained 3.8% after reports said activist investor ValueAct Capital had acquired a stake in the entertainment company.
TJX (NYSE:) shares were down 2.7% after it forecast current-quarter profit below Wall Street expectations, signaling that spiraling costs were weighing on the off-price retailer’s margins.
Sirius XM (NASDAQ:) rallied 6.7% after Warren Buffett’s Berkshire Hathaway (NYSE:) took a stake in the audio entertainment company.
Advancing issues outnumbered decliners on the NYSE by a 1.45-to-1 ratio; on Nasdaq, a 1.70-to-1 ratio favored advancers.
The S&P 500 posted 42 new 52-week highs and no new lows; the Nasdaq Composite recorded 104 new highs and 69 new lows.
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