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Aug. 10, 2022, 5:55 p.m. EDT

U.S. stocks close at highest level since May after CPI data shows cooling inflation in July, easing pressure on Fed

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By Isabel Wang and Frances Yue

U.S. stock indexes closed at their highest levels since early May on Wednesday, after July’s headline consumer price index showed inflation slowing, due largely to lower energy prices, and potentially easing the burden on the Federal Reserve’s monetary policy.

How are stock indexes trading

  • The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +3.13%  finished 535.10 points higher, or 1.6% to 33,309.51.

  • The S&P 500  /zigman2/quotes/210599714/realtime SPX +3.04%  advanced 87.77 points, or 2.1% to close at 4,210.24.

  • The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +2.71% rallied 360.88 points, or 2.9% to 12,854.80.

On Tuesday , the Dow Jones Industrial Average fell 0.2% to 32774, the S&P 500 declined 0.4% to 4122 — its fourth-straight losing session — and the Nasdaq Composite dropped 1.2%, to 12493, its third consecutive drop.

What’s driving markets

The consumer price index was unchanged in July, compared with the 1.3% gain in the prior month, according to the Labor Department. The rate of inflation in the 12 months ended in July slowed to 8.5% from a 41-year high of 9.1% in June.

The closely-watched core measure of inflation that omits volatile food and energy prices rose 0.3% in July, a slower pace than a 0.7% gain in the prior month. The 12-month rate remained steady at 5.9%.

See : U.S. consumer price inflation surprises to downside in July

“A number of components that people have been flagging as being potentially problematic and keeping inflation persistent at high levels, started to show some easing,” Stephen Hoedt, managing director at equity and fixed income research at Key Private Bank, said in an interview. Hoedt cited a slowdown in the rise of the owners’ equivalent rent index and medical care index in July.

“I really do think that that opens the possibility to the Fed considering 50 basis point hikes instead of 75,” Hoedt said.

The Federal Reserve will consider the data ahead of its September 20-21 policy meeting where it is expected to raise its benchmark interest rate again.

Following the release of July inflation data, Fed funds futures are now pricing in higher odds of a 50 basis point interest rate hike from the Fed in September, a dramatic shift from just a day ago.

However, although the inflation data moderated a bit on the back of falling gasoline prices , some analysts still believe it’s running at a worryingly high rate as both shelter and food costs rose significantly. Shelter costs, which make up about one-third of the CPI weighting, rose 5.7% over the past 12 months.

“The persistence of still solid inflation data witnessed today, when combined with last week’s strong labor market data, and perhaps especially the still solid wage gains, places Fed policymakers firmly on the path toward continuation of aggressive tightening,” wrote Rick Rieder, chief investment officer of global fixed income at BlackRock Inc.’s and head of the BlackRock global allocation investment team, in an emailed comment. He believed the FOMC will stick with another 75 basis point hike at the September meeting, the third such substantial hike in a row.

See : Stock-market investors cheer July inflation data. Big-name firms like Pimco and BlackRock aren’t so sure.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
29,624.11
+898.60 +3.13%
Volume: 320.97M
Oct. 3, 2022 2:55p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,694.67
+109.05 +3.04%
Volume: 2.22B
Oct. 3, 2022 2:55p
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/zigman2/quotes/210598365/realtime
US : Nasdaq
10,862.21
+286.59 +2.71%
Volume: 3.35B
Oct. 3, 2022 2:55p
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