THE GIST (“THE WHAT”)
Extending previous session’s gains, the S&P 500 index rallied higher to close above the closely watched 4500 level after June’s PPI data showed that inflation is subsiding, increasing the odds that the Fed could be nearing an end to its aggressive monetary tightening policy. Gapping higher at the open, the index grinded higher throughout the session to close near fresh new highs for the year at 4510.05, up 37.90 points (0.85%). An unexpected decline in weekly jobless claims underscored the resilience of U.S. labor market, capping the day’s strong gains.
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Trading Plans for THU. 07/13: PPI Good News on Inflation Front, but Bad News on Recession Front?
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THE DETAILS (The “How & Why”):
Optimism that moderating inflationary pressures could allow the Fed to end its interest rate hiking cycle boosted investor sentiment. U.S. producer prices rose at the smallest pace in three years, reinforcing market expectations that inflation is subsiding. While the Fed is unlikely to dissuade from raising rates by 25 basis points later this month, markets are now broadly expecting that this could be the last rate hike. On the other hand, a surprise decline in weekly jobless claims suggested resilience in labor market which could be hawkish for Fed policy. The 10-year Treasury yield fell by 9.4 basis points to settle near its 2-week low at 3.763%.
Chip stocks extended gains on the back of falling yields. Qualcomm, ON Semiconductor, Marvell Technology all rose more than 3% each. Alphabet soared 4.72% on reports that it plans to expand its AI chatbots in Europe and Brazil.
Cybersecurity stocks clawed back their previous session’s losses as worries of increasing competition from Microsoft eased after Bloomberg Intelligence said that ‘Microsoft’s expansion into cybersecurity with its Secure Access Service Edge (SASE) is likely to augment its endpoint security suite, though a lower efficacy may limit headwinds to other cloud-security vendors’. Zscaler, Cloudflare and Crowdstrike Holdings jumped more than 3% each.
Investors are bracing for the second quarter earnings that kick-off with bank earnings. Regional banks traded mostly higher led by a 3% rise in KeyCorp. Insurance stocks, however, pulled back after Progressive Corp led the index lower, tumbling 13% after reporting a lower-than-expected net premiums for the second quarter. Allstate also shed 2%.
Fastenal was another strong decliner for the session, falling 3.46% after the manufacturing bellwether reported second quarter net sales that were below estimates, citing a challenging second quarter and warning of softening markets.