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.
Three out of every four stocks in the S&P 500 index climbed, but pullbacks for Nvidia, Microsoft and a handful of other highly influential companies masked that underlying strength. These stocks have been the market’s biggest winners amid a frenzy around artificial-intelligence technology, causing critics to say they had become too pricey, and they helped drag the S&P 500 down 0.7% from its all-time high set a day before.
The drops for Big Tech stocks also pulled the Nasdaq composite down 1.7% from its own record, while the Dow Jones Industrial Average was 26 points higher, or 0.1%, with less than an hour remaining in trading.
The direction was still decidedly upward for the majority of stocks on Wall Street, particularly housing-related companies, real-estate owners and others that benefit from easier interest rates. BXP, the company that owns Boston’s Prudential Center and other high-profile office developments across the country, climbed 4.8% for one of the market’s bigger gains.
Smaller companies that have lagged behind the market’s behemoths for a while were also strong, and the Russell 2000 index of smaller stocks leaped 3.3% to lead the market decisively. The shift is encouraging to some market watchers, who see it as a healthy signal when more stocks are participating in a rising market rather than just an elite, overpowered 1%.
The day’s action was even stronger in the bond market, where yields tumbled as traders built bets 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 to release pressure that’s built up on the economy because of 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 making a move. 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 from a year earlier, 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 provides a big lift for stock prices.
Lower yields helped real-estate owners and utilities lead the way in the stock market. Falling bond yields make those stocks’ relatively high dividends more attractive to investors seeking income.
Real-estate investment trusts in the S&P 500 jumped 2.3% for the biggest gain among the 11 sectors that make up the index. Utility stocks were close behind with a gain of 1.7%.
Homebuilders were also strong on hopes that lower mortgage rates will juice the industry. D.R. Horton climbed 6.7%, as did Lennar for some of the biggest gains in the S&P 500. Mohawk Industries, which makes flooring for homes, jumped 6%.
Besides hopes for coming cuts to interest rates, expectations for strong profit growth have also helped push the U.S. stock market to records. Analysts expect S&P 500 companies to deliver their best growth in more than two years this upcoming reporting season, according to FactSet, but it’s getting off to a mixed start.
Delta Air Lines lost 5.3% 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.
Conagra Brands fell 1.8% even though its profit for the latest quarter beat expectations. Revenue for the company behind Birds Eye, Duncan Hines, and Marie Callender’s fell short of analysts’ forecasts. Conagra also gave a forecast for profit in its upcoming fiscal year that was below analysts’. The food company said customers are still getting used to higher prices.
Tesla fell 7.5% to give back some of the gains from its 11-day romp where it had soared 44%. It and all the other stocks in the group that’s come to be known as the “Magnificent Seven” fell for the day. Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla have been behind the bulk of the S&P 500’s returns for more than a year because their fortunes seemed to rise regardless of the economy’s strength or where interest rates were.
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.
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AP Business Writers Matt Ott and Elaine Kurtenbach contributed.