Most U.S. stocks are rising Thursday after the latest update on inflation bolstered Wall Street’s belief that relief on interest rates may come as soon as September.
The S&P 500 was virtually unchanged in early trading near its all-time high set a day before. The Nasdaq composite was adding 0.1% to its record, as of 9:35 a.m. Eastern time, while the Dow Jones Industrial Average slipped 37 points, or 0.1%.
Stocks that tend to benefit the most from easier interest rates led the way, such as homebuilders and real-estate owners. Seven out of every 10 stocks in the S&P 500 were rising, though pullbacks for bigger, more influential companies like Microsoft masked that strength.
Smaller companies that have been lagging behind the market’s behemoths for a while were also strong, and the Russell 2000 index of smaller stocks leapt 1.8% to lead the market.
The action was much stronger in the bond market, where yields tumbled as traders’ bets built for the Federal Reserve to soon begin lowering its main interest rate. It’s been sitting for nearly a year at its highest level in more than two decades.
Wall Street wants lower interest rates because they can release the pressure that’s built up on the economy due to how expensive it’s become to borrow money to buy houses, cars or anything on credit cards. Fed officials, though, have been saying they want to see “more good data” on inflation before pulling the trigger. They’ve kept rates high to intentionally put downward pressure on the economy, hoping to fully snuff out the worst inflation in generations.
Wall Street sees Thursday’s report, which showed milder increases than expected for prices of gasoline, cars and other things U.S. consumers bought during June, as providing just that.
“One word: pivotal,” said Lindsay Rosner, head of multi-sector investing within Goldman Sachs Asset Management. “With three inflation prints between this morning and September’s Fed meeting, today’s print was crucial in helping the Fed gain confidence inflation is still moving in the right direction.”
Following the report’s release, Treasury yields tumbled immediately. The yield on the 10-year Treasury dropped to 4.19% from 4.28% late Wednesday and from 4.70% in April. That’s a major move for the bond market, and such a drop in yields provides a big lift for stock prices.
The two-year Treasury yield, which more closely tracks expectations for Fed action, eased to 4.51% from 4.62% late Wednesday.
The lower yields helped the majority of the U.S. stock market to rise. Real estate owners and utilities led the way because falling yields make their relatively high dividends look more attractive to investors seeking income.
Real-estate investment trusts in the S&P 500 jumped 1.8% for the biggest gain by far among the 11 sectors that make up the index. Utility stocks were the second-best in the index with a gain of 0.6%.
Homebuilders were also strong on hopes that lower mortgage rates would juice the industry. PulteGroup rose 4.3% and D.R. Horton climbed 4% for some of the biggest gains in the S&P 500.
Besides hopes for coming cuts to interest rates, expectations for strong profit growth amid a resilient but slowing economy have also helped to push the U.S. stock market to record. Analysts expect S&P 500 companies to deliver their best growth in over two years this upcoming reporting season, but it’s getting off to a mixed start.
Delta Air Lines lost 8.1% after reporting slightly weaker revenue and profit for the spring than analysts expected. The airline said demand is strong for peak summer travel, but it also gave a profit forecast for the current quarter that fell short of Wall Street’s estimates.
PepsiCo fell 1.4% despite topping profit forecasts for the spring. Its revenue for the latest quarter came in a bit shy of analysts’ expectations, and the food giant said that an important underlying measure of revenue will likely come in at the bottom of its earlier forecasted range for the full year.
On the winning end was WD-40, which rose 1.7% after reporting stronger profit and revenue than analysts expected.
In stock markets abroad, Japan’s Nikkei 225 rose 0.9% to set another all-time high.
Indexes were also strong across much of the rest of Asia and Europe.
