S&P 500, Nasdaq close at highest in 15 months after inflation data takes some pressure off Fed

What drove the markets

Stocks ended higher while Treasury yields TMUBMUSD02Y,
4.746%

TMUBMUSD10Y,
3.865%
and the US dollar DXY,
-1.13%
fell after consumer price index data showed US inflation at its slowest pace in more than two years on Wednesday.

I will see: US dollar falls to one-year low after CPI data shows inflation slows again in June

US consumer prices rose a modest 0.2% in June. Economists polled by the Wall Street Journal had expected a 0.3% increase. The annual inflation rate slowed to 3% from 4% the previous month, marking the lowest level since March 2021.

The so-called core rate of inflation that excludes food and energy rose a mild 0.2% last month, the smallest increase in nearly two years. Wall Street had forecast a 0.3% increase. The annual core inflation rate eased to 5% from 5.3% in the previous month.

look: US inflation slows again, CPI says, as Fed weighs another rate hike

Markets have been receiving the CPI impression “pretty well,” said Brian Katz, chief investment officer at Colony Group.

The lower-than-expected CPI data is likely to “extend the uptrend [in stocks] that we’ve been experiencing this year,” Katz in a call. “As long as we’re in this environment where disinflation continues and we have reasonable growth, it’s a good environment for risk assets,” Katz said.

Inflation in June fell in most major categories, notably house prices, which had been rising, according to George Mateyo, chief investment officer at Key Private Bank.

“The Fed will take this report as validation that its policies are having the desired effect: inflation has fallen while growth has not yet stalled. But it is unlikely to change its mind about raising interest rates.” ‘interest at the end of this month,’ Mateyo wrote in an emailed comment on Wednesday.

I will see: See how inflation has increased your cost of living with MarketWatch’s guide

“These are those rare days when good news was actually good news for almost everybody,” said Phillip Toews, chief investment officer at Toews Asset Management.

However, Toews said one thing people don’t necessarily consider is the “potentially tortuous path” inflation can take. Good CPI readings will allow interest rates to stabilize later in the year, making the housing and labor market stronger, but this will again have an impact on inflation, he said Toews.

“Watch out for the waves; Watch out for multiple spikes,” Toews told MarketWatch in a phone interview Wednesday. “The risk may be more of a demand pull situation, which is you have a lot of strong labor and a lot of wealth, and that could be one of the main things driving inflation back up. That’s a real risk here that we’re now full of risk again, and there’s a chance that could change in the next three to six months — we see inflation re-emerging.”

Fed funds futures traders priced in a 92.4% chance the Fed will raise its benchmark interest rate by 25 basis points at its meeting later this year, according to CME Fed Watch. month. They priced in a 12.9% chance the US central bank will raise interest rates again in September, but that’s down from 22.3% a day ago.

I will see: The Fed’s Beige Book points to continued, slow economic growth

Economic activity in the US rose slightly in late May and June, according to the central bank’s latest Beige Book report released on Wednesday.

Fed trade contacts across the country said economic activity picked up only slightly in the past two months and the sluggish growth was expected to continue. The central bank said five of its 12 districts recorded slight or modest growth, five saw flat activity and two reported slight or modest declines.

look: Megabank profits in reach after second quarter of bank failures and rising interest rates

Investors were also looking forward to the start of second-quarter earnings season, with the nation’s biggest banks including JPMorgan Chase & Co. JPM,
+0.50%,
Wells Fargo & Co. WFC,
+1.22%
and Citigroup Inc. C,
+1.83%
because they will publish their results on Friday.

Bank of America Corp. BAC,
+1.17%
and Morgan Stanley MS,
+0.95%
will provide its second-quarter updates on July 18, followed by Goldman Sachs Group Inc. GS,
+1.72%
on July 19.

Meanwhile, US government bank regulators should conduct a new “high inflation” stress test to identify banks at risk and better measure their capital shortfalls, the chairman of the Federal Reserve said on Wednesday. Minneapolis, Neel Kashkari.

“The potential losses banks face today from interest rate risk appear to be more idiosyncratic than system-wide, and this high-inflation stress test would help banks prepare for a worse-case scenario than expected,” Kashkari said in a blog post and a follow-up. debate on banking stability hosted by your regional Fed bank.

Companies in focus

• Domino’s Pizza Inc.
  DPZ,
  +11.09%
  shares ended 11.1% higher on Wednesday after the company announced a deal with Uber Technologies Inc.
  Uber,
  +0.36%
  that you’ll see Domino’s menu options included in the Uber Eats and Postmates apps.

• Shares of ShiftPixy Inc.
  pixie,
  -28.87%
  fell 28.9% after the workforce management software company’s equity offering valued the stock at a steep discount.

• Lucid Group Inc.
  LCID,
  -11.82%
  Shares fell 11.8% after the company said Wednesday it delivered 1,404 vehicles in the second quarter, while producing 2,173 vehicles at its Arizona facility.

• SunPower Corp.
  SPWR,
  +8.19%
  shares rose 8.2% after Raymond James analyst Pavel Molchanov upgraded the stock to a strong buy based on outperform.

• Shares of Draftkings, Inc.
  DKNG,
  +5.28%
  gained 5.3% after Bank of America Global Research analyst upgraded the stock to buy from neutral, writing “acceleration in product and revenue momentum” that “are about to drive a turnaround in margins and profitability.”

— Jamie Chisholm contributed.