The S&P 500, Nasdaq and Dow closed higher after wholesale inflation came in below expectations, while strong results from BlackRock and Morgan Stanley strengthened confidence in the second-quarter earnings season.
By yourNEWS Media Newsroom
Wall Street’s major stock indexes moved higher Wednesday as a second consecutive day of cooler-than-expected inflation data and strong corporate earnings encouraged investors to buy shares despite continued weakness among semiconductor companies.
Consumer-oriented stocks, including retail, travel and leisure companies, were among the strongest performers during the session.
The S&P 500 gained 29 points, or 0.38%, to close at 7,572.59, according to preliminary data. The Nasdaq Composite rose 161.87 points, or 0.62%, to 26,268.88, while the Dow Jones Industrial Average advanced 155.53 points, or 0.30%, to 52,663.80.
PayPal was one of the market’s largest movers after sources told Reuters that Stripe and private equity firm Advent International had jointly offered to acquire the company for $60.50 per share.
The reported offer represented a premium of approximately 28% over PayPal’s closing price Tuesday, sending its shares sharply higher.
Investors also welcomed another round of better-than-expected results from major financial companies.
BlackRock and Morgan Stanley both reported quarterly profits that surpassed analysts’ forecasts, extending a strong start to the second-quarter earnings season after several large banks posted favorable results a day earlier.
“Everything looks great with the bank earnings,” said Mike Dickson, head of portfolio management at Horizon Investments in Charlotte, North Carolina. “I would not be at all surprised to see another bang-out quarter.”
Analysts now expect companies in the S&P 500 to report second-quarter earnings growth of 23.7% compared with the same period one year earlier, according to the latest estimates from LSEG.
That projected increase has helped support stock prices near record levels and strengthened expectations that corporate profits may justify the market’s elevated valuations.
The Labor Department’s producer price index provided the day’s other major source of support.
The report showed wholesale inflation was weaker than economists expected, following Tuesday’s cooler consumer price index reading.
Together, the two reports indicated that inflation moved in a more favorable direction during June, although price pressures remained elevated because of the U.S.-Israeli war with Iran.
The softer figures reduced immediate pressure on the Federal Reserve to raise its benchmark interest rate at the conclusion of its July meeting.
“My fear going into this week was, we could get a hot CPI print, inflation above 3.8%, and we didn’t get it; we got a cooler reading of 3.5%,” said Lauren Cassidy, chief investment officer of Founders 100 ETF in Dallas.
“So that allows the Federal Reserve to have the opportunity to keep rates flat or cut them later this year, which is good news for the market,” Cassidy said.
Financial markets were pricing in a 10.2% probability that the Fed would raise its policy rate by 25 basis points at the conclusion of this month’s meeting, according to CME’s FedWatch tool.
That was down sharply from a 31% probability one week earlier.
The inflation reports coincided with newly confirmed Federal Reserve Chairman Kevin Warsh’s second day of congressional testimony before the Senate Banking Committee.
Warsh’s appearance drew additional attention as investors assessed whether the central bank would maintain rates, raise them later in the year or eventually begin reducing borrowing costs.
The June inflation figures strengthened the case for patience, but policymakers continue to face uncertainty from renewed fighting in the Middle East.
This week’s consumer and producer price reports reflect conditions from last month, when investors were increasingly hopeful that negotiations could produce a peaceful resolution to the regional conflict.
That optimism has weakened as the United States and Iran exchanged escalating airstrikes and competed for control of the Strait of Hormuz.
A prolonged disruption in the strategic waterway could raise crude oil, transportation and production costs, renewing inflationary pressure after June’s improvement.
Federal Reserve Gov. Lisa Cook said she was “prepared to act” if inflation failed to begin slowing soon.
The possibility of renewed energy-driven inflation remained one of the principal risks facing the market even as Wednesday’s economic data supported stocks.
Semiconductor shares lagged during the session, but gains in consumer-oriented businesses and financial companies were sufficient to lift all three major indexes.
The day’s advance reflected growing confidence that strong earnings and moderating inflation could continue supporting equities, provided the conflict with Iran does not produce another sustained surge in energy prices.
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