The S&P 500 edged up by 1.12, or less than 0.1%, to 4,468.83. It was just the second winning day for the index in the last eight, but it had been up 1.3% in the morning before wobbling between small gains and losses.
The Dow Jones Industrial Average gained 52.79, or 0.2%, to 35,176.15 after giving up most of a morning gain of 455 points. The Nasdaq composite added 15.97, or 0.1%, to 13,737.99.
The morning’s highly anticipated report showed US consumers paid prices that were 3.2% higher in July than a year earlier. That’s a touch milder than the 3.3% inflation rate economists expected to see and down sharply from last summer’s peak above 9%. Beneath the surface, underlying trends for inflation were also within expectations.
The readings bolstered hopes among investors that the Federal Reserve’s campaign to grind down inflation is progressing and that it could maybe even be done hiking interest rates. High rates undercut inflation by slowing the entire economy and hurting investment prices, which raise the risk of a recession.
Such hopes helped the S&P 500 rally a big 19.5% through the first seven months of the year. But critics have been saying Wall Street latched too quickly and forcefully onto a belief that inflation will continue to cool, the economy will avoid a recession and the Fed has already hiked rates for the final time this cycle. Several economists said again on Thursday that future moves by the Fed are still uncertain, tamping down some enthusiasm.
The Fed has said it will make upcoming decisions on rates based on what data reports say, particularly those on inflation and the job market. Its main interest rate is already at its highest level in more than two decades.
Thursday’s report likely gives the Fed a reason to hold rates steady at its next meeting in September, before it gets more economic data in the runup to the following meeting that ends Nov. 1, according to Gargi Chaudhuri, head of iShares Investment Strategy, Americas.
“Separating the signal from the noise, most of the components of inflation are heading in the right direction,” said Brian Jacobsen, chief economist at Annex Wealth Management. He said if the trends continue, it will be tough to justify another hike to interest rates.
Another report on inflation is looming on Friday, which will show how bad inflation was in July at the wholesale level. Then, more reports on inflation and one more on overall hiring for August will arrive before the Fed’s next meeting that ends Sept. 20.
Treasury yields in the bond market initially fell following the inflation data, along with a report that showed slightly more workers applied for unemployment benefits last week than expected.
Fed officials would likely welcome some softening of the job market, which has remained remarkably resilient despite much higher interest rates. That’s because a looser job market could remove upward pressure on inflation.
The weekly data on unemployment claims, though, have given false inflection points in the past about the job market, said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. That could mean the cuts to interest rates that investors really desire may be further off than hoped.
“The Fed may leave interest rates unchanged next month, but they’re not about to start cutting them,” Loewengart said.
Big US companies, meanwhile, continue to report mostly better profits for the spring than analysts expected. That’s usually the case, and analysts had particularly low expectations coming into this reporting season. Higher costs for workers and other expenses are broadly eating into profit margins.
The Walt Disney Co. rose 4.9% after saying it would raise prices for some of its streaming services in hopes of boosting profitability. The entertainment giant reported stronger profit for the spring than analysts expected but weaker revenue.
Capri Holdings, which owns the Michael Kors, Versace and Jimmy Choo brands, soared 55.7% as Big Fashion continues to consolidate.
Tapestry, the company behind luxury handbag and accessories retailer Coach, said it was buying the company for roughly $8.5 billion. The deal would put it in better position to take on big European rivals, such as LVMH. Tapestry fell 15.9%.
In the bond market, Treasury yields rose in the afternoon following an auction by the US government of 30-year Treasury bonds. Yields have been generally rising recently amid concerns about heavy borrowing by the federal government. Those higher yields add pressure on the stock market.
The yield on the 10-year Treasury rose to 4.09% from 4.01% late Wednesday. It helps set rates for mortgages and other important loans.
The two-year Treasury yield, which moves more on expectations for the Fed, ticked up to 4.81% from 4.80% late Wednesday.
In stock markets abroad, indexes were mostly higher in Europe and Asia.
Stocks in China held relatively steady after US President Joe Biden signed an order to block and regulate high-tech US-based investments going toward China.
