Market Snapshot: S&P 500, Nasdaq edge higher, but trade below session highs after July’s inflation report

United States

U.S. stocks were slightly higher Thursday afternoon, after an initial rally in the S&P 500 index and Nasdaq Composite faded, as investors gauged if July’s report on consumer prices could spell the end of Federal Reserve interest rate hikes.

What’s happening

  • The Dow Jones Industrial Average DJIA was up 138 points, or 0.4%, to 35,264.
  • The S&P 500 SPX rose 11 points, or 0.3%, to 4,479, after briefly turning negative.
  • The Nasdaq Composite COMP gained 26 points, or 0.3%, to 13,759, after also briefly trading in the red.

The S&P 500 has declined six of the last seven sessions as stocks have seen a rocky start to August, but both the S&P 500 and Dow managed to shake off losses from earlier in the week as they fought to avoid a second straight weekly decline.

What’s driving markets

Stock prices were volatile Thursday after a monthly U.S. inflation reading spurred hopes that the Federal Reserve might be close to ending its rate hiking campaign.

U.S. consumer prices rose by 0.2% in July on both a headline and core basis, with the latter excluding food and energy prices. Both measures were in line with economists’ expectations.

On a year-over-year basis, headline prices rose by 3.2%, less than the 3.3% forecast by economists polled by The Wall Street Journal, but higher than the 3% reading from the prior month, and it was the first reacceleration in 13 months.

See: U.S. inflation rate creeps back up, CPI shows, but probably not enough to worry the Fed

Investors were at a crossroads over whether to push equities higher or take chips off the table and were wondering about whether the Fed may be done hiking interest rates after bringing its policy rate to a 22 year high.

“This seems to be the new trend,” said Peter Cardillo, chief market economist, Spartan Capital Securities. “The market takes off like a powerhouse, and during the course of the session, loses steam. I think you can contribute that to intraday volatility.”

After stocks rallied in response to the inflation data, the S&P 500 briefly briefly turned negative in the afternoon portion of the session when Francisco Fed President Mary Daly said there’s “more work to do,” even though the latest data showed inflation coming down.

“Look, there’s no denying the fact that the Fed may be already finished hiking rates, and if not, it’s about to finish,” Cardillo told MarketWatch.

See: 3 reasons why investors should be cautious about July’s ‘very encouraging’ CPI reading

See also: Housing prices were a big driver of inflation. Now some economists see a slowdown.

Traders now see less than a 10% chance of a September rate rise by the Fed after the CPI data but down from more than 20% a week ago, according to the CME’s FedWatch tool.

Still, a team at Citigroup Inc. worry that rising energy prices could potentially cause inflation to reaccelerate later this year. West Texas Intermediate crude for September delivery CLU23, -1.68%  settled at $ 84.40 a barrel on the New York Mercantile Exchange on Wednesday, its highest level of 2023.

Read: Why ‘stunning’ jump in jet fuel, diesel prices may complicate Fed’s inflation fight in months ahead

In other economic news, the latest reading on unemployment claims showed the number of Americans applying for unemployment benefits increased last week by 21,000 to 248,000.

Treasury yields, which have been in focus for stocks lately, were little-changed on the day in recent trade as an initial knee-jerk decline after the release of the CPI data faded.

The yield on the 10-year Treasury note BX:TMUBMUSD10Y jumped to 4.08% after falling as low as 3.95% shortly after the inflation data were released at 8:30 a.m. Eastern Time.

The U.S. dollar also edged up in afternoon trade, with the ICE U.S. Dollar Index DXY up less than 0.1% at 102.52.

Companies in focus

  • Walt Disney Co. shares DIS, +5.05% rose after the media giant reported a mixed third-quarter and said it would raise prices on almost all of its streaming packages in an aggressive push to boost profit.
  • Capri Holdings shares CPRI, +55.17% jumped after Tapestry TPR, -16.00%, the owner of Coach, announced a deal to buy the company, the parent company of Michael Kors, Jimmy Choo and Versace. 
  • Plug Power Inc. stock PLUG, -16.05% dropped after the alternative-energy company saw losses for the second quarter increase more than Wall Street expected.
  • Alibaba Group Holding Ltd. BABA, +4.69% shares rose after the Chinese e-commerce giant topped expectations with its latest revenue and earnings.
  • Roblox Corp. RBLX, +3.63% shares rose modestly, paring some of a post-earnings decline.

–Steven Goldstein contributed reporting to this article.