Stock bulls cheer Wall Street’s disinflation trade

Wall Street got an extra dose of encouragement to bid up stocks after another inflation report reinforced bets the Federal Reserve is approaching an interest-rate peak.

All of a sudden, disinflation becomes the buzzword across trading desks, with investors looking on the bright side of data showing a slowdown in prices – even though core inflation is still running above the central bank’s 2% target. Equities gained further traction on news that Fed Bank of St. Louis President James Bullard – who called for aggressive hikes – has resigned.

Trader James Conti works on the floor of the New York Stock Exchange on Thursday. Wall Street is adding to its winning week on Thursday following the latest signal that inflation is continuing to ease its chokehold on the economy. Richard Drew/Associated Press

Tech mega caps led gains on Thursday, with the S&P 500 topping 4,500 and the Nasdaq 100 up over 1.5%. Amazon.com hit a 10-month high after reporting record sales during its Prime Day sale. Google’s parent Alphabet rallied about 4.5%. Banks also gained ahead of results from JPMorgan Chase, Citigroup, and Wells Fargo. Two-year yields fell 13 basis points to 4.61%. The dollar dropped for a fifth consecutive day.

The producer price index for final demand rose 0.1% from a year earlier, the smallest advance since 2020. The figures came just a day after data showed consumer prices rose in June at the slowest pace since 2021.

“The disinflation narrative is in full effect,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “It does appear that inflation is coming down across the board, and although the Fed is still likely to raise rates again at the end of this month, there is a very strong possibility that they are done raising rates for the year.”

The recent economic figures have sent clear signals that the Fed’s policy is working, but it’s possibly too early to claim victory against inflation, according to Fiona Cincotta, senior market analyst at City Index.

“If I had to choose a camp, I would probably go in the two rate hikes to come – July and possibly another one later in the year,” Cincotta added. “And I think that there will be a growing number of Fed officials who will be questioning whether more rate hikes are actually needed after July.”

Fed Bank of San Francisco President Mary Daly told CNBC Thursday that it’s too soon for policymakers to say they have done enough to return U.S. inflation to their target. While the latest consumer-price report “is very positive,” the official said she’s in a “wait-and-see mode on that, because I remain resolute to bring inflation down to 2%.”

Aside from the economic debate, traders were also eagerly awaiting the unofficial start of the second-quarter earnings season Friday.

The focus is going to be mostly on the corporate outlooks given that beating profit expectations seems to be a low hurdle – even as some estimates have started to rise slowly.

Goldman Sachs Group strategists expect U.S. companies to be able to meet the low bar set by consensus. And Bloomberg Intelligence strategist Gina Martin Adams says “the S&P 500 earnings season will likely reveal more of the ‘less bad than feared’ trend that emerged in 1Q.”

“The thing I’m focusing on in the market, of course, is earnings, to see where the numbers come in, to try to get a gauge on how companies are doing, and really what they’re forecasting going forward,” said Chris Gaffney, president of world markets at TIAA Bank.

In other corporate news, Delta Air Lines said it will make more money this quarter than Wall Street anticipated as it reported better-than-predicted results for the prior three months. PepsiCo raised its sales and earnings estimates once again after a strong quarter. Exxon Mobil agreed to buy Denbury for $4.9 billion, its biggest acquisition in six years.

Some of the main moves in markets:

STOCKS

• The S&P 500 rose 0.8% as of 4 p.m. New York time

• The Nasdaq 100 rose 1.7%

• The Dow Jones Industrial Average rose 0.1%

• The MSCI World index rose 1.2%

CURRENCIES

• The Bloomberg Dollar Spot Index fell 0.7%

• The euro rose 0.9% to $1.1226

• The British pound rose 1.1% to $1.3133

• The Japanese yen rose 0.3% to 138.02 per dollar

CRYPTOCURRENCIES