U.S. stock index futures rose to their highest in three months on Thursday after another batch of inflation data appeared to confirm that price pressures eased by a larger-than-expected degree in July.
How are stock-index futures faring
-
S&P 500 futures
ES00,
+0.74%
rose 32 points, or 0.8%, to 4,242. -
Dow Jones Industrial Average futures
YM00,
+0.81%
climbed 270 points, or 0.8%, to 33,545. -
Nasdaq 100 futures
NQ00,
+0.74%
added 113 points, or 0.9%, to 13,505.
On Wednesday, the Dow Jones Industrial Average
DJIA,
rose 535 points, or 1.63%, to 33310, the S&P 500
SPX,
increased 88 points, or 2.13%, to 4210, and the Nasdaq Composite
COMP,
gained 361 points, or 2.89%, to 12855. The S&P 500 is up 14.8% from its 2022 closing low hit in mid-June but remains down 11.7% for the year to date.
What’s driving markets
Stock futures advanced to fresh three-month highs on Thursday after the July Producer Price Index showed the cost of goods paid by wholesalers dropped by 1.8% in July, the largest decline since April 2020.
The data appeared to confirm that inflationary pressures had eased by a larger-than-expected degree last month following a cooler-than-expected reading on U.S. consumer-price growth released on Wednesday.
The headline number showed prices charged by wholesalers dropped 0.5%, which was less than the 0.2% advance that economists polled by The Wall Street Journal had anticipated.
See: U.S. producer price inflation moderates in July
Hopes that the pace of price rises has hit a peak are encouraging investors to believe the Federal Reserve might be less aggressive in hiking interest rates. Less-aggressive hikes in borrowing costs will also lower the chances that the U.S. will enter a deeper economic downturn in the coming months.
Traders have piled back into equities in response, particularly growth stocks that had been so badly hit during the market rout that culminated in June. The tech-heavy Nadasq Composite is up 20.8% from its mid-June trough, and the S&P 500 is on track to open at its highest since May.
“The softer than expected U.S. inflation reading pushed the market odds narrowly back in favor of a +50 basis point Fed hike in September…and delivered a significant boost to long-duration assets. Growth stocks beat their value counterparts across all the major regions,” said Ian Williams, economics and strategy research analyst at Peel Hunt.
Alex Pelle, U.S. economist at Mizuho, said in a note to clients: “We do have some very preliminary evidence that inflation may be taking a step down from an underlying pace around 8% to the something closer to the 5% level. This is a level that will still keep the Fed hiking, but the July round of data — taken as given — gives the bulls an early win.”
Also supporting the upbeat tone was a well-received earnings report from Walt Disney
DIS,
which helped the media group’s shares bounce 5.9% in premarket action.
Overall, the second quarter earnings season has helped underpin the market. With companies representing 91% of S&P 500 market capitalization having reported, sales growth has been 15.1% and earnings growth 7.9% – surprising by plus 3.5% and plus 3.6%, according to Evercore ISI.
However, the latest surge in stocks may have left the market over-extended and vulnerable to a pullback. The CBOE Vix index
VIX,
an options-based gauge of expected S&P 500 volatility, has dipped below its long-run average of 20, suggesting traders may be getting a tad complacent.
In addition, the S&P 500’s 14-day relative strength index, a closely watched momentum gauge, is around 74, where any reading above 70 is considered overbought territory. The RSI for market behemoth Apple
AAPL,
is 76, the highest since December.
Companies in focus
-
Shares of GSK PLC
GSK,
-4.32% ,
Haleon PLC
HLN,
-7.05%
and Sanofi
SAN,
-9.02%
amid controversy surrounding serious side-effects caused by the heartburn drug Zantac. -
Six Flags Entertainment Corp.
SIX,
+5.78%
shares were down more than 14% in premarket trade after the company released disappointing earnings. -
Canada Goose Holdings Inc.
GOOS,
+4.93%
shares climbed more than 6% in pre-opening trade after the company reported higher than expected revenue, which offset a larger-than-expected loss.
How are other assets faring
- Oil was seeing modest gains, with West Texas Intermediate crude for August delivery up $1.15, or 1.3%, to $93.08 a barrel.
-
The 10-year Treasury yield
TMUBMUSD10Y,
2.755%
fell 5.8 basis points to 2.737%. -
The ICE Dollar index
DXY,
-0.37%
fell 0.2% to 104.97 as traders priced in a less aggressive Fed. But a softer buck did not help gold
GC00,
-0.11% ,
which lost 0.6% to $1,083 an ounce -
Bitcoin
BTCUSD,
+3.20%
advanced 2.3% to $24,410. -
Asia markets mostly got a lift from Wall Street’s overnight surge with Hong Kong’s Hang Sang
HSI,
+2.40%
adding 2.2%, though Japan missed out because of the Mountain Day holiday. In Europe the Stoxx 600
SXXP,
+0.02%
was up 0.2%.
