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Market Snapshot: U.S. stocks end mixed as rally tied to cooler inflation data takes breather

U.S. stocks traded at fresh three-month highs Thursday after another batch of July data suggested inflation may be easing, but were off the day’s best levels in afternoon trade with big technology stocks lagging.

How stocks are faring

S&P 500
SPX,
-0.06%

rose 23 points, or 0.6%, to 4,234.

Dow Jones Industrial Average
DJIA,
+0.06%

climbed 195 points, or 0.6%, to 33,504.

Nasdaq Composite
COMP,
-0.55%

added 17 points, or 0.1%, to 12,872.

On Wednesday, the Dow Jones Industrial Average rose 535 points, or 1.63%, to 33310, the S&P 500 increased 88 points, or 2.13%, to 4210, and the Nasdaq Composite gained 361 points, or 2.89%, to 12855. The S&P 500 is up 14.8% from its 2022 closing low hit in mid-June but remains down 11.7% for the year to date.

What’s driving markets

Stocks surged to their highest levels since early May after the July producer-price index fell 0.5%, compared with expectations for a 0.2% rise, although the three main U.S. stock benchmarks have pared their gains somewhat heading into afternoon trading in New York.

See: U.S. producer price inflation moderates in July

Thursday’s optimistic inflation report followed a similarly cooler-than-expected reading on U.S. consumer-price growth released a day earlier. That data also helped send stocks soaring, with the Nasdaq exiting bear-market territory and the Dow exiting correction territory.

Hopes that inflation has peaked helped encourage investors to pile back into equities based on the view that slowing inflation could allow the Federal Reserve to hike interest rates less aggressively.

“While one number certainly doesn’t constitute a trend, the decline in wholesale prices could indicate that supply-chain bottlenecks are improving,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “Overall, the data, combined with CPI data earlier this week, is a welcome sign that we could be getting close to or have passed peak inflation. However, we would caution that while the trend is improving, we have a long way to go to get back towards 2% inflation.”

However, some market analysts are urging caution as rising housing costs could keep core inflation elevated, even as a drop in oil prices and other commodities has helped to reduce inflation expectations.

See: Don’t be fooled by a drop in U.S. headline inflation. Markets will be attuned to another figure on Wednesday

“Our view is that this is a rally that really deserves a lot of scrutiny because when we think about what has happened since the mid-June low, the market outlook hasn’t really changed,” said Jake Jolly, senior investment strategist at BNY Mellon Investment Management.

“Historically, the Fed delivers more hikes than the market anticipates. And this is clearly a hiking cycle that is far from over,” Jolly said.

The second quarter earnings season has also helped underpin the market. Walt Disney Co. 
DIS,
+4.69%

shares jumped 5.8% after the media and entertainment giant posted stronger-than-expected subscriber numbers for the last quarter, along with earnings and revenue that beat expectations.

With companies representing 91% of S&P 500 market capitalization having reported, sales growth has been 15.1% and earnings growth 7.9% – surprising by plus 3.5% and plus 3.6%, according to Evercore ISI.

However, the latest surge in stocks may have left the market overextended and vulnerable to a pullback. The CBOE Vix index
VIX,
+3.44%
,
an options-based gauge of expected S&P 500 volatility, has dipped below its long-run average of 20, suggesting traders may be getting a tad complacent.

In addition, the S&P 500’s 14-day relative strength index, a closely watched momentum gauge, is around 74, where any reading above 70 is considered overbought territory. The RSI for market behemoth Apple
AAPL,
-0.30%

is 76, the highest since December.

In other economic data news, initial jobless benefit claims rose 14,000 to 262,000 in the week ended Aug. 6, as the weekly data continued to show rising numbers of Americans applying for jobless benefits — even as the unemployment rate inched lower last month to 3.5%.

See: U.S. jobless claims move higher, a ‘cool breeze’ over hot labor market

Companies in focus

Shares of GSK PLC
GSK,
-6.72%
,
Haleon PLC
HLN,
-4.90%

and Sanofi
SAN,
-3.33%

tumbled amid controversy surrounding serious side effects caused by the heartburn drug Zantac. Shares of Pfizer Inc.
PFE,
-3.49%

 fell more than 3% 

Six Flags Entertainment Corp.
SIX,
-20.01%

shares were down more than 21% after the theme park operator reported the second-worst performance in its 12-year public history, after a big miss in attendance led to a surprise drop in second-quarter revenue

Canada Goose Holdings Inc.
GOOS,
+0.33%

shares were up 1.3% after the company reported higher than expected revenue, which offset a larger-than-expected loss.

Shares of Utz Inc.
UTZ,
-1.70%

rose 0.5% after the salty snacks maker beat Wall Street’s adjusted net income and revenue targets and raised it fiscal 2022 organic net sales outlook by 2%.

Warby Parker
WRBY,
+18.62%

shares were up nearly 20% after reporting a narrow-than-expected loss for the second quarter.

How are other assets faring

Oil was seeing modest gains, with West Texas Intermediate crude
CL00,
+2.15%

CL.1,
+2.15%

CLU22,
+2.15%

for September delivery up $2.4, or 2.6%, to $94.33 a barrel.

The yield on the 2-year Treasury 
TMUBMUSD02Y,
3.206%

fell to 3.169% from 3.214% on Wednesday afternoon, while the yield on the 10-year Treasury
TMUBMUSD10Y,
2.882%

 rose to 2.851% from 2.786%. Yields and debt prices move opposite each other.

The ICE Dollar index
DXY,
-0.05%

fell 0.2% to 104.98 as traders priced in a less aggressive Fed. But a softer buck did not help gold
GC00,
-0.60%
,
which was marginally lower. Gold futures expiring in December
GCZ22,
-0.60%

 dropped $9.30, or 0.5%, to settle at $1,804.50,

Bitcoin
BTCUSD,
+1.23%

advanced 2% to $24,373.

Asia markets mostly got a lift from Wall Street’s overnight surge with Hong Kong’s Hang Sang
HSI,
+2.40%

finishing 2.4% higher, though Japan missed out because of the Mountain Day holiday. Shanghai Composite
SHCOMP,
+1.60%

rose 1.6%.

In Europe, the STOXX 600
SXXP,
+0.06%

rose less than 0.1%, while the FTSE 100
UKX,
-0.55%

ended 0.6% lower.

— Jamie Chisholm contributed to this article.

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