Major Indexes Close Higher on Favorable Inflation Data
Major stock indexes in the United States closed higher on Thursday, largely due to a more subdued-than-anticipated reading of wholesale inflation data. The S&P 500, in particular, reached new records both intraday and at the close. Following the report, interest rates began to decline, as market participants grew more confident that the Federal Reserve would not increase interest rates at its upcoming meeting.
The tech-heavy Nasdaq Composite, the benchmark S&P 500, and the blue-chip Dow Jones Industrial Average all finished the day up. Specifically, the Nasdaq Composite gained 0.8%, the S&P 500 increased by 0.7%, and the Dow Jones Industrial Average rose 0.1%. The Dow Jones successfully ended a three-day losing streak, though its gains were somewhat limited by a sharp 9% drop in shares of Cisco Systems (CSCO).
Analysis of Inflation and Interest Rate Expectations
The market reaction was prompted by the release of the July Producer Price Index (PPI) data before the market opened. This report showed that wholesale prices were stable month-over-month, following a 0.3% decline observed in June. This reading was better than the 0.2% increase that economists had projected. Furthermore, “core” prices, which exclude fluctuations in energy and food costs, rose 0.2%, matching the previous month and remaining below the anticipated 0.3% increase.
The 10-year Treasury yield, which influences rates on various consumer loans such as mortgages, stood at approximately 4.65% at 4 p.m. ET. This represented a decrease from 4.67% immediately before the data release and from 4.69% recorded at the previous week’s close. This reading followed a day when the July Consumer Price Index (CPI) matched expectations, and six days after a softer-than-expected July employment report, both of which had eased concerns that the central bank was poised to raise its key interest rate.
Market sentiment shifted significantly regarding future rate hikes. According to the CME Group’s FedWatch tool, the probability of the Federal Reserve raising interest rates at its next meeting dropped to 35%. This was a decline from 40% recorded before the data and 55% recorded one week prior.
Fifth Third Commercial Bank Chief U.S. Economist Bill Adams commented on the data, stating:
The July CPI and PPI reports keep a narrow path open for the Fed to hold rates steady at the September decision. The August CPI and PPI reports will come out before that decision, so today’s data aren’t the final word.
He added that while the PPI data does not change the overall inflation picture—as he noted inflation remains high—the improvement in core inflation was encouraging.
Stock Movements and Commodity Prices
Several sectors and individual stocks drove the day’s activity. The Roundhill Memory ETF (DRAM) gained 4%, driven by a surge of its components, including Sandisk (SNDK), Western Digital (WDC), SK Hynix (SKHY), Micron Technology (MU), and Seagate Technology (STX), which collectively rose about 4% to 14%. In the broader market, the Real Estate, Communication Services, and Information Technology sectors led the S&P 500, with each sector gaining roughly 1%.
Among individual stocks, Workday (WDAY) was highlighted as the top performer in both the S&P 500 and Nasdaq 100. Shares soared by 18% to 21% following a Reuters report indicating that the private-equity firm Silver Lake was exploring a potential acquisition of the human resources software company. Other notable gains included Tesla (TSLA), which led the advances among the Magnificent Seven tech giants, although Nvidia (NVDA) was the only one in that group to close in negative territory.
On the commodity front, crude oil futures fell for the second consecutive day. WTI futures, the U.S. benchmark, decreased 2.4% to $81.25 a barrel in recent trading, while the international benchmark, Brent futures, dropped 2.1% to $87.10. Gold futures also saw a pullback of 1.3%, settling at $4,410 an ounce. Bitcoin remained relatively stable at approximately $63,300, and the U.S. dollar index slipped 0.1% to 99.95.
