Market Snapshot: Dow rallies 400 points as July inflation report bolsters expectations Fed is done hiking rates


U.S. stocks were sharply higher on Thursday, with the Dow up 400 points, after the July report on consumer prices showed inflation remained relatively subdued last month, helping to cement expectations that the Federal Reserve has finished raising interest rates.

What’s happening

  • The Dow Jones Industrial Average DJIA gained 419 points, or 1.2%, to 35,556.
  • The S&P 500 SPX gained 57 points, or 1.3%, to 4,525.
  • The Nasdaq Composite COMP rose by 220 points, or 1.6%, to 13,943.

The S&P 500 has declined six of the last seven sessions as stocks have seen a rocky start to August, but all three major indexes have erased their losses for the week so far as of 10 a.m. Eastern Time, boosting the chances of stocks avoiding a second-straight weekly decline, what would be the first for the S&P 500 since May, according to FactSet data.

What’s driving markets

U.S. consumer prices rose by 0.2% in July on both a headline and core basis, excluding food and energy prices, both of which were in line with economists’ expectations, according to the latest consumer-price index report from the Department of Labor.

However, on a year-over-year basis, headline prices rose by 3.2%, which was lower than 3.3% forecast by economists polled by The Wall Street Journal, but higher than the 3% reading from the prior month. That marked the first re-acceleration in 13 months. Meanwhile, an increase in core inflation, excluding food and energy prices, over the past year slowed a tick to 4.7% from 4.8%, the lowest rate in almost two years.

Analysts scrutinizing the details of the report generally determined that it would boost the Fed’s case for leaving interest rates on hold in September.

Economists noted declines in both used and new car prices in July, while dismissing a 7.7% year-over-year increase in shelter prices, reasoning that slower growth in rents in July would help ameliorate price pressures in an area that is being closely watched by the Fed.

Based on how individual categories are weighted in the overall CPI data, the cost of rent and housing accounted for more than 90% of the increase in consumer prices last month.

“Overall, the underlying details of the July CPI inflation data are consistent with ongoing progress on disinflation,” said Gurpreet Gill, global fixed income macro strategist at Goldman Sachs Asset Management, in emailed commentary.

“Although core services inflation trended higher on the month, other component-level trend are evolving in line with our expectations. In particular, rents and used car prices softened, alongside clothing and airfares.”

Traders now see less than 14% chance of a September rate rise by the Fed, which was little-changed after the CPI data but down from more than 20% a week ago, according to the CME’s FedWatch tool.

One analysts said the data could help to reverse some of stocks’ August slump.

“Today’s inflation report is good news for a market that’s seen profit taking and worries about summer volatility,” said David Russell, vice president of market intelligence at TradeStation.

In other economic news, the latest reading on unemployment claims showed the number of Americans applying for unemployment benefits increased last week by 21,000 to 248,000.

Treasury yields, which have been in focus for stocks lately, were little-changed on the day in recent trade as an initial kneejerk decline after the release of the CPI data faded.

The yield on the 10-year Treasury note BX:TMUBMUSD10Y was marginally lower at 4.002% after falling as low as 3.95% shortly after the inflation data were released at 8:30 a.m. Eastern Time.

The U.S. dollar also weakened, with the ICE U.S. Dollar Index DXY off 0.2% at 102.28.

Companies in focus

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