The consumer price data for July, which came in milder than expected, helped Wall Street experience a notable rise in its indices on Thursday, which was a surprising turn of events. This unexpected outcome has ignited hopes that the Federal Reserve might opt to maintain current interest rates in the upcoming month.
Wall Street Rises on Optimism Amid Cooling Inflation Data
The recently released data from Wall Street disclosed that both headline and core consumer prices exhibited a modest 0.2% increase in July, translating to an annual escalation of 3.2% and 4.7%, respectively.
Drawing vigor from these inflation figures, Wall Street traders are now not only envisioning a halt in the central bank’s monetary tightening for the rest of 2023 but also speculating that the Federal Reserve could embark on a journey of interest rate reductions early next year.
George Mateyo, the Chief Investment Officer at Key Private Bank, offered insights into this optimistic stance, stating, “Inflation has returned to the good old days where in 2019 we saw an average monthly increase of around 0.2%… The Fed, therefore, might feel it can pause as planned and not raise interest rates in September.”
However, despite this positive sentiment, San Francisco Fed President Mary Daly proceeded with caution in her commentary. While she acknowledged the recent favorable trajectory of inflation data, Daly asserted that more substantial progress was necessary before she could confidently assert that the central bank had executed adequate measures.
Nonetheless, the advancement in the benchmark 10-year treasury note’s yield, reaching 4.02%, restrained gains for major growth companies. Despite this, Amazon.com (AMZN.O), Microsoft (MSFT.O), and Apple (AAPL.O) demonstrated resilience, registering gains ranging from 0.5% to 1.1%.
In contrast, the tech-heavy Nasdaq experienced a downturn the day before. The decline was primarily attributed to Nvidia (NVDA.O), which experienced a substantial 4.7% drop, closely followed by the remaining “Magnificent Seven” megacap stocks that had been instrumental in this year’s stock rally.
Throughout this year, the Nasdaq has managed to surge by an impressive 32.2%. This remarkable achievement can be attributed to the widespread optimism regarding the U.S. economy’s soft landing amidst the Federal Reserve’s aggressive interest rate hikes, as well as the widespread enthusiasm surrounding the potential of artificial intelligence.
As of 11:31 a.m. ET, the Dow Jones Industrial Average (.DJI) had surged by 255.47 points, equating to a 0.73% increase, reaching 35,378.83. Correspondingly, the S&P 500 (.SPX) demonstrated a gain of 30.95 points (0.69%) at 4,498.66. The Nasdaq Composite (.IXIC) followed suit, registering a rise of 99.03 points (0.72%) at 13,821.05.
Simultaneously, the job market presented a mixed picture, as the number of Americans filing new claims for unemployment benefits exhibited an unexpected increase of 248,000 last week, surpassing the anticipated figure of 230,000 additions.
In terms of corporate performance, Walt Disney (DIS.N) managed to outperform Wall Street expectations by achieving a 3.2% increase in quarterly adjusted profit per share, consequently boosting its shares.
Further electrifying the Wall Street market, Capri (CPRI.N) experienced an astonishing surge of 56.2% following a larger rival, Tapestry’s (TPR.N), announcement of its $8.5 billion acquisition of the parent company of Michael Kors. However, Tapestry‘s own shares faced a decline of 12.6% as a result of this announcement.
Meanwhile, Alibaba’s U.S.-listed shares surged by an impressive 6.7%, propelled by upbeat quarterly sales figures, attributed to enhanced consumer sentiment.
Notably, President Joe Biden introduced heightened trade concerns by signing an executive order that restricts new U.S. investment in China in sensitive technological domains like computer chips. Additionally, the order mandates government notification for investments in other technology sectors.
In terms of Wall Street market dynamics, advancing issues managed to outnumber decliners by a ratio of 2.53 to 1 on the NYSE and 1.52 to 1 on the Nasdaq.
The S&P index reported 18 new 52-week highs and three new lows, while the Nasdaq recorded 49 new highs and 108 new lows, painting a dynamic and complex picture of the current market landscape.