Investors are getting a boost from another economic signal that shows inflation is cooling.
An index that measures the price sellers get for their goods and services fell 0.5 percent in July, the Labor Department said Thursday. This marks the first decline in the producer price index since April 2020 as COVID-19 was spreading across the US. The data follows a government report on Wednesday that showed consumer prices. it was also reduced in July.
Inflation is still painfully high, of course, and the economy has given false signals before relief is on the way only for the rug to be pulled from investors. Some Federal Reserve officials also made comments after Wednesday’s inflation report suggested its battle against rising prices is far from over.
“A potential spike in annual inflation measures is a welcome sign for consumers, businesses and the [Federal Open Market Committee]but historically high price dynamics in the economy are likely to persist until the end of the year,” Mahir Rasheed, US economist at Oxford Economics, said in a report.
But there is enough hope for a spike in inflation, and the Fed’s aggressiveness has meant the S&P 500 has roughly halved its losses from the start of the year, and is up more than 15% since of its fund in mid-June.
“Healthy Slowdown”
Evidence that inflation is slowing could ease concerns that the US is on the cusp of a recession. Goldman Sachs analyst Manuel Abacasis said in a research note that current economic data suggests “the economy is experiencing a healthy slowdown, not a recession.”
By afternoon, the S&P 500 was up 13 points, or 0.3%, at 4,223, with about four in five stocks in the index rising. The Dow Jones Industrial Average rose 0.4%, while the tech-heavy Nasdaq Composite lost 0.2%.
Cryptocurrencies also rose in another echo of Wednesday’s trading, as relief flowed through markets following a cooler-than-expected reading on consumer-level inflation. But the day’s moves were generally more modest than Wednesday’s.
Technology stocks and other investments that have fallen the most early this year on the Fed’s aggressive rate hikes have been among the strongest, with the Nasdaq up more than 20% since its June low.
Inflation slowed in July as gasoline prices fell
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The Walt Disney Co. rose 5.8% after the entertainment company posted stronger profits for its latest quarter than analysts expected. It cited strong performance at its U.S. theme parks and announced price increases for its streaming services.
In general, companies whose profits depend more on a strong economy were helping to lead the way. Energy stocks as a group rose 3.6% to post the biggest gain among the 11 sectors that make up the S&P 500. They benefited from higher oil and natural gas prices. Shares of commodity producers in the index rose 1.3% and financial companies rose 1.2%.
Wall Street expects slower Fed tightening
Concerns about a potential recession still linger in the market as the Fed continues to raise interest rates to combat inflation. These increases slow the economy by design, and some parts of the economy have already weakened under their weight, especially the housing industry. But to resilient labor market has offered a strong counterbalance, leading to a dim outlook for the economy.
A report on Thursday showed fewer US workers filed for unemployment last week than expected, a potentially encouraging sign on layoffs. But nevertheless it was the highest number since November.
Traders are now betting on the Fed to raise overnight interest rates by half a percentage point at its meeting next month. That’s less than the 0.75 percentage point rise they were expecting before Wednesday’s stunner in a consumer-level inflation report.
The Fed’s last two hikes were 0.75 points, accelerating from its two previous hikes of the year, as the central bank stepped up its fight against high inflation. Even if the Fed succeeds in slowing the economy enough to end inflation without triggering a recession, higher interest rates drive down the prices of all types of investments.
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- Economy
- Stock Market
- Gas prices
- inflation
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