S&P 500 finishes above 4,500 level for first time in 15 months as U.S. stocks advance for 4th day on upbeat inflation data

What drove markets

Stocks extended their gains Thursday from earlier in the week as the latest batch of U.S. economic data suggested that the Federal Reserve has managed to bring down inflation without provoking the surge in unemployment and economic downturn that many market participants 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 a day after the U.S. consumer-price 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 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 to 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 U.S. economy into a recession,” said Nigel Green, the CEO of the advisory and asset-management deVere Group. “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,
3.768%,
which started the week near 4.1%, now at 3.759%, the lowest level since June 28, according to Dow Jones Market Data. Bond yields move inversely to prices.

The ICE U.S. Dollar Index
DXY,
-0.76%,
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.

However, James St. Aubin, chief investment officer at Sierra Mutual Funds, said if investors are being “myopic” about inflation and not considering the job market, they are “probably missing the Fed’s data-dependent spectrum.”

“They [the Fed] don’t feel like the inflation fire is going to be completely extinguished if the job market continues to be strong,” St. Aubin told MarketWatch on Wednesday. “In that regard, I think they’re going to be focused on [the Job Openings and Labor Turnover Survey] — so they’re going to see job openings come down significantly before they’re completely comfortable with standing down.”

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,
+0.49%,
Citigroup
C,
+0.63%
and Wells Fargo
WFC,
+1.04%
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

• Walt Disney Co.’s
  DIS,
  +0.35%
  stock finished 0.4% higher on Thursday after the company’s board extended Chief Executive Bob Iger’s contract for two more years, through December 2026.

• Delta Air Lines Inc.
  DAL,
  -0.50%
  shares dropped 0.5% 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,
  +2.38%
  stock rose 2.4% after the drinks and snacks giant topped estimates for the second quarter and raised its guidance for a second straight quarter.

• Amazon.com Inc.
  AMZN,
  +2.68%
  shares rallied 2.7% after the company said the first day of its Prime Day shopping event drove its best sales performance yet.

Jamie Chisholm contributed.