Stocks opened higher Thursday as newly released data showed inflation ticked up on an annual basis for the first time in over a year but dis-inflationary trends remained positive. The S&P 500 was 1.1% higher in early trading and on track for just its second winning day in the last eight. The Dow Jones Industrial Average was up 366 points, or 1%, at 35,489, as of 9:50 a.m. Eastern time, and the Nasdaq composite was 1.3% higher. The Consumer Price Index (CPI) rose 0.2% over last month and 3.2% over the prior year in July, in line with June’s 0.2% month-over-month increase but higher than June’s 3% annual increase. The Associated Press has the story:
Stocks rally after inflation data on hopes of pausing rate hikes
Newslooks- NEW YORK (AP)
Stocks are rallying Thursday as Wall Street lets out a bit of an exhale following the latest update on inflation across the U.S.
Stocks are opening higher as Wall Street lets out a bit of an exhale following the latest update on inflation. The S&P 500 was 1.1% higher in early trading and on track for just its second winning day in the last eight. The Dow Jones Industrial Average was up 366 points, or 1%, at 35,489, as of 9:50 a.m. Eastern time, and the Nasdaq composite was 1.3% higher. The readings bolstered hopes that the Federal Reserve’s campaign to grind down inflation is making progress.
Wall Street pointed toward gains before markets opened Thursday ahead of a closely watched U.S. inflation report. Futures for the Dow Jones industrials and the S&P 500 each climbed 0.5% before the opening bell.
Thursday’s highly anticipated report showed U.S. consumers paid prices that were 3.2% higher in July than a year earlier. That’s a touch milder than the 3.3% inflation rate economists expected to see and down sharply from last summer’s peak above 9%. Beneath the surface, underlying trends for inflation were also within expectations.
The readings bolstered hopes among investors that the Federal Reserve’s campaign to grind down inflation is progressing and that maybe it could even be done hiking interest rates. High rates undercut inflation by slowing the entire economy and hurting investment prices, which raise the risk of a recession.
Tina Teng, markets analyst at CMC Markets, called the looming update “a pivotal event for global markets.”
U.S. Federal Reserve officials have said repeatedly that their upcoming decisions on interest rates would depend on the latest economic data, especially for inflation and the job market.
Such hopes helped the S&P 500 rally a big 19.5% through the first seven months of the year, though critics say Wall Street too quickly formed a consensus that inflation is continuing to cool, the economy will avoid a recession and the Fed has already hiked rates for the final time this cycle.
The Fed has said it will make upcoming decisions on rates based on what data reports say, particularly those on inflation and the job market. Its main rate is already at its highest level in more than two decades.
Thursday’s report likely gives the Fed a reason to hold rates steady at its next meeting in September, before it gets more economic data in the runup to the following meeting that ends Nov. 1, according to Gargi Chaudhuri, head of iShares Investment Strategy, Americas.
Of course, another report on inflation is looming on Friday, which will show how bad inflation was in July at the wholesale level. Then, more reports on inflation and one more on overall hiring for August will arrive before the Fed’s next meeting that ends Sept. 20.
“Separating the signal from the noise, most of the components of inflation are heading in the right direction,” said Brian Jacobsen, chief economists at Annex Wealth Management. He said if the trends continue, it will be tough to justify another hike to interest rates.
Treasury yields were also dipping in the bond market after a report showed slightly more workers applied for unemployment benefits last week than expected. The number remains low compared with history, signaling the job market remains remarkably resilient despite much higher interest rates.
Fed officials would likely welcome some softening of the job market, which they would see as removing upward pressure on inflation.
The weekly data on unemployment claims, though, have given head fakes in the past about the trajectory of the job market, said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. That could mean the cuts to interest rates that investors really desire may be further off than hoped.
“The Fed may leave interest rates unchanged next month, but they’re not about to start cutting them,” Loewengart said.
Big U.S. companies, meanwhile, continue to report mostly better profits for the spring than analysts expected. That’s usually the case, and analysts had particularly low expectations coming into this reporting season as higher costs for workers and other expenses eat into profit margins.
The Walt Disney Co. rose 1% after saying it would raise prices for some of its streaming services in hopes of boosting profitability. The entertainment giant reported stronger profit for the spring than analysts expected but weaker revenue.
Capri Holdings, which owns the Michael Kors, Versace and Jimmy Choo brands, soared 56.1% as Big Fashion continues to consolidate.
Tapestry, the company behind luxury handbag and accessories retailer Coach, said it was buying the company for roughly $8.5 billion. The deal would put it in better position to take on big European rivals, such as LVMH. Tapestry fell 9.6%.
In the bond market, the yield on the 10-year Treasury dipped to 3.99% from 4.01% late Wednesday. It helps set rates for mortgages and other important loans.
The two-year Treasury yield, which moves more on expectations for the Fed, slipped to 4.78% from 4.80%.
In stock markets abroad, indexes were higher in Europe and mixed in Asia.
Stocks in China held relatively steady after U.S. President Joe Biden signed an order to block and regulate high-tech U.S.-based investments going toward China. Biden signed an executive order Wednesday that covers advanced computer chips, micro electronics, quantum information technologies and artificial intelligence. The order seeks to blunt China’s ability to use U.S. investments in the country’s technology companies to upgrade its military, but also to preserve broader levels of trade that are vital for both nations’ economies.
A hot reading on inflation would certainly support the view that the Fed’s job in battling inflation is far from done and that it may have to keep hiking interest rates. At the least, it could push the Fed to keep rates high for longer than expected.
High interest rates rates can cool inflation by slowing the entire economy. The Fed has already raised its federal funds rate to the highest level in more than two decades. Rate hikes historically take a long time to take full effect across the economy, so the risk of a recession remains a threat.
The U.S. will also release weekly jobless claims figures early Thursday. The U.S. job market has remained very strong, defying Fed attempts to cool off hiring as part of its campaign.
And while major corporate acquisitions have slowed somewhat, they are still arriving.
On Thursday, Tapestry, the parent company of luxury handbag and accessories retailer Coach, announced that it is buying Capri Holdings, which owns the Michael Kors, Versace and Jimmy Choo brands.
The approximately $8.5 billion deal puts Tapestry in a better position to take on its big European fashion rivals, such as LVMH and Kering.
Shares in Capri climbed 58% in premarket. Tapestry fell about 4%.
The Walt Disney Company is up more than 1% after CEO Bob Iger vowed to make its streaming services profitable through an October price hike on its ad-free Disney+ and Hulu plans and a crackdown on password sharing expected to extend through next year.
Elsewhere, Japan’s benchmark Nikkei 225 added 0.8% to finish at 32,473.65. Australia’s S&P/ASX 200 added 0.3% to 7,357.40. South Korea’s Kospi lost 0.1% to 2,601.56. Hong Kong’s Hang Seng was little changed, rising less than 0.1% to 19,248.26. The Shanghai Composite rose 0.3% to 3,254.56.
In addition to plunging imports and exports and concerns about deflation, sentiment in China was weighed down by U.S. President Joe Biden’s order to block and regulate high-tech U.S.-based investments going toward China.
In Europe at midday, France’s CAC 40 surged 0.8%, while Germany’s DAX gained 0.5%. Britain’s FTSE 100 was unchanged.
In energy trading, benchmark U.S. crude lost 43 cents to $83.97 a barrel. Brent crude, the international standard, retreated 24 cents to $87.31 a barrel.
In currency trading, the U.S. dollar edged up to 143.84 Japanese yen from 143.67 yen. The euro cost $1.1024, up from $1.0979.
On Wednesday, the S&P 500 lost 0.7% and has now dropped six of the last seven days. The Dow fell 0.5% after flipping between gains and losses through the day. The Nasdaq composite finished 1.2% lower.
