The Dow industrials and S&P 500 finished in record territory for a second straight day on Wednesday, after a report on consumer inflation mostly matched expectations, but the broader market faced some headwinds as healthcare and growth shares were sold.
How did markets trade?
On Tuesday, the Dow rose 162.82 points, or 0.5%, to close at 35,264.67, the S&P 500 gained 4.40 points, or 0.1%, to end at 4,436.74, with the Nasdaq Composite moving the other way, closing down 72.09 points, or 0.5%, to 14,788.09.
What drove markets?
Stocks finished mostly higher on Wednesday after a new reading on consumer inflation offered some evidence to calm fears about high costs of living in the U.S. during the pandemic.
The Labor Department reported the July consumer-price index rose 5.4% in July from a year earlier, as price measures of food, energy, shelter and new vehicles rose, while costs of used cars, airfare and auto insurance retreated. The reading was about in line with data on June and slightly lower than some predictions for 5.5%.
The government said the July CPI increased 0.5% for the month, matching expectations, while the core rate, excluding volatile food and energy prices, rose by 0.3%, below expectations of a 0.4% increase, according to average estimates of economists polled by Dow Jones. The 12-month core rate decelerated to 4.3% from 4.5%, which was a 29-year high.
“Given the fact that inflation data matched estimates, there isn’t a huge amount of panic out there,” said Wayne Wicker, chief investment officer at MissionSquare Retirement, which oversees about $74.5 billion in assets under management for public employee retirement plans.
“This month, vehicle price growth eased a bit for used cars and trucks,” Wicker told MarketWatch. “If it remains on that track to reduce the price surge over the past 12-18 months, I think that goes a long way in providing the Federal Reserve with another bullet point that inflation might be transitory in some categories.”
If pricing pressures can moderate in the months ahead, Wicker said that also could help tamp down some of the uncertainties nagging at equity investors as stocks trade in record territory. It also “could be a real positive tailwind for continued earnings growth,” he said.
Key members of the rate-setting Federal Open Market Committee, including Chairman Jerome Powell, have said that they see inflation’s rise amid the COVID pandemic as a short-term phenomenon.
Some analysts also said the market remains focused on the health of the jobs market and wages, as a key part of the Fed’s mandate.
On Wednesday both Kansas City Federal Reserve President Esther George and Dallas Fed President Rob Kaplan argued for tapering the central bank’s bond buying program soon, but late Tuesday Chicago Fed’s Charles Evans advocated for waiting longer. Evans is a voting member of the Fed’s policy-making committee this year, while both George and Kaplan are not, but will be in 2022.
Upbeat quarterly earnings results also have been a big support for recent buying, analysts said. “The post-pandemic earnings for the S&P 500 over the past five quarters has beaten expectations by about 15-20 percent. These are all-time highs that suggest the economic recovery is not only on track, but stronger than many anticipated,” wrote Jonathan Waite, senior research analyst at Frost Investment Advisors, in emailed commentary.
That said, the S&P 500’s tech sector
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Which companies were in focus?
How did other assets fare?
Barbara Kollmeyer contributed reporting