Market Snapshot: S&P 500 on cusp of 4,500 as stocks climb for 4th day and trade at 15-month highs

What’s driving markets

U.S. stocks trade higher on Thursday afternoon with the S&P 500 and Nasdaq Composite trading at their highest levels since early April 2022.

Stocks extended their gains from earlier in the week as the latest batch of U.S. economic data suggested the Federal Reserve has managed to bring down inflation without provoking a surge in unemployment and the economic downturn that many had feared.

The producer price index (PPI) rose a meek 0.1% in June, according to the Bureau of Labor Statistics report. Economists surveyed by Dow Jones expected an increase of 0.2%. Core PPI, which strips out volatile food and energy prices, climbed 0.1%, in line with expectations. 

The June producer report came in a day after the U.S. consumer consumer index for June rose a modest 0.2% and the rate of inflation slowed to the lowest level since 2021. The yearly rate of inflation decelerated to 3% from 4% in the prior month.

Meanwhile, a weekly accounting of the number of Americans applying for jobless benefits declined by 12,000 to 237,000, indicating that the U.S. labor market still remains tight even as job growth is slowing.

The encouraging economic data have helped all three main U.S. equity indexes reverse their losses from last week, as investors bet that an end to the Fed’s interest hiking cycle might be in sight, while odds of a soft landing, in which inflation returns close to the Fed’s 2% target without a recession, are improving. 

“The U.S. CPI data raises hopes that the Federal Reserve is going to be able to bring down inflation without steering the US economy into a recession,” Nigel Green, the CEO of the advisory and asset management deVere Group, said. “Cooling inflation and a strong and resilient labor market suggests that no recession will come in 2023. We believe the Fed has pulled off the perfect soft landing.”

Borrowing costs also dipped further, with the benchmark 10-year Treasury yield
TMUBMUSD10Y,
3.767%,
which started the week near 4.1%, now at 3.78%. Bond yields move inversely to prices.

The ICE U.S. dollar index
DXY,
-0.71%,
a gauge of the currency’s value against its main rivals, also declined, slumping to its lowest level in more than a year Thursday, adding another tailwind to the stock-market rally.

Bokeh Capital Partners CIO Kim Forrest agreed that both inflation and employment data may be finally responding to the Fed’s interest-rate hikes and quantitative tightening, bolstering expectations that the Fed might achieve its policy goals without provoking a surge in unemployment or a punishing recession.

“It seems like things are moving in the right direction,” she said during an interview with MarketWatch.

Even outside the U.S., there was a broad “risk on” tone across global markets. Hong Kong’s Hang Seng Index
HSI,
+2.60%,
whose currency peg with the U.S. dollar makes it particularly sensitive to Fed policy, rose 2.5% on Wednesday, despite news that Greater China exports fell in June by their most since the start of the COVID pandemic.

Extending the rally now likely depends on how the second-quarter corporate earnings season is received. Investors are already looking ahead to Friday when big banks such as JPMorgan Chase
JPM,
+0.60%,
Citigroup
C,
+0.57%
and Wells Fargo
WFC,
+0.69%
will present their quarterly earnings figures.

Overall S&P 500 earnings are expected to fall by 6.4%, according to Refinitiv, though much of this is because of large losses for energy companies.

Companies in focus

• The Walt Disney Co.‘s
  DIS,
  +0.36%
  stock rose 0.4% on Thursday after the company’s board extended Chief Executive Bob Iger’s contract for twomore years through December 2026.

• Delta Air Lines Inc.
  DAL,
  +1.56%
  rose 1.4% toward a more-than two-year high after the air carrier reported record second-quarter profitability and sales and boosted its full-year outlook, citing continued “robust” travel demand.

• PepsiCo Inc.’s
  PEP,
  +2.13%
  rose 1.7% after the drinks and snacks giants topped estimates for the second quarter and raised its guidance for a second straight quarter.

• Amazon.com Inc.
  AMZN,
  +2.67%
  shares rallied 2.6% after the company said its first day of its Prime Day shopping event drove its best sales performance yet.

Jamie Chisholm contributed