Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) closed Tuesday’s trading session in negative territory, shrugging off an encouraging inflation reading.
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In December, the Consumer Price Index (CPI) rose by 2.7% year-over-year, in line with the consensus estimate of 2.7% and unchanged from November. Core CPI, which excludes volatile food and energy prices, increased by 2.6% from a year ago, below the estimate of 2.7% and holding steady from the prior month.
Despite easing prices in recent months, inflation remains above the Fed’s target of 2%. Federal Reserve Bank of St. Louis President Alberto Musalem noted that the inflation data is “encouraging,” although he still sees “little reason” to cut interest rates in the near term. He believes that rates are currently around a neutral level, which means that they neither stimulate nor restrict economic growth.
Investors seem to agree, with the odds of a 25 bps rate cut at the next three Federal Open Market Committee (FOMC) meetings all drifting lower in response to the inflation data. The Fed is widely expected to hold rates steady during its first FOMC meeting of the year on January 28, with CME’s FedWatch tool pricing in 97.2% odds.
“JUST OUT: Great (LOW!) Inflation numbers for the USA,” President Trump said in a Truth Social post on Tuesday. “That means that Jerome ‘Too Late’ Powell should cut interest rates, MEANINGFULLY!!!”
Trump also promised to support protesters in Iran amid an uprising over economic challenges and political repression. On Monday, he ordered a 25% tariff on all countries that trade with Iran, which could potentially fray the U.S.-China trade truce. China purchased over 80% of Iran’s oil exports in 2025 and is its largest trading partner. Other key partners include Russia, India, and Japan.
Elsewhere, the U.S. budget deficit notched a monthly record high of $145 billion in December as tariff revenues fell to $27.9 billion, registering the lowest amount since July. However, it’s worth noting that after adjustments, the budget would have fallen to $112 billion, marking a year-over-year decrease of 11%, or $14 billion. A major adjustment was accounting for the transfer of $32 billion in January benefit payments into December because the new year began on a weekend. Additionally, while tariff revenue has cooled in recent months, it’s still up by 333% from the comparable period last year since the start of fiscal year 2026 on October 1, 2025.
The S&P 500 (SPX) closed with a 0.19% loss, while the Nasdaq 100 (NDX) fell by 0.18%.
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