Wall Street’s Initial Gains Fizzle as Economic Concerns Eclipse Inflation Positivity

In July, both headline and core consumer prices exhibited a 0.2% increase, leading to a yearly uptick of 3.2% for the headline figure and 4.7% for the core.

On August 10, Wall Street’s primary indices initially surged but later settled into a mostly stagnant trading session.

While the initial excitement stemmed from better-than-expected inflation data, broader concerns about the future of the U.S. economy and the potential for continued stock market growth dampened the enthusiasm.

In July, both headline and core consumer prices exhibited a 0.2% increase, leading to a yearly uptick of 3.2% for the headline figure and 4.7% for the core.

During the first hour of trading, the three major benchmark indices soared by over 1% on the speculation that the U.S. Federal Reserve might halt further monetary tightening in 2023 and initiate interest rate reductions in the coming year.

Yung-Yu Ma, the Chief Investment Officer at BMO Wealth Management, noted that the market’s response was unsurprising as expectations of milder inflation were already largely factored into prices.

He emphasized that investors were remaining cautious due to potential medium-term risks such as economic growth slowing down, reduced lending from banks, and the trickle-down effects of the Fed’s previous rate adjustments.

The Federal Reserve’s track record of raising rates by 525 basis points since the commencement of the tightening cycle to combat persistent inflation was cited as a factor contributing to the market’s long-term caution.

San Francisco Fed President Mary Daly echoed this sentiment, stating that while recent inflation data was promising, more progress was necessary to instill confidence in the central bank’s efforts.

Separately, data revealed that new claims for unemployment benefits in the U.S. surged by 248,000 in the past week, surpassing predictions of 230,000.

Traditionally, August experiences a decline in market activity as many investors embark on summer vacations. Given the steady five-month growth in the S&P 500 and Nasdaq Composite propelled by robust technology stocks, any gains in stock prices present an occasion for profit-taking.

The rise of megacap technology firms like Amazon, Microsoft, and Apple has been hampered as the yield on the 10-year U.S. Treasury note climbed above 4%.

By 2:05 p.m. ET (1805 GMT), the Dow Jones Industrial Average eked out a 0.09% gain, the S&P 500 dipped by 0.09%, and the Nasdaq Composite retreated by 0.07%. Most sectors of the S&P were in the red, including industrials and real estate.

Walt Disney’s stocks increased by 4.3% after surpassing Wall Street predictions for quarterly adjusted profit per share.

Capri experienced a remarkable 56% surge following the announcement of its acquisition by larger competitor Tapestry in an $8.5 billion deal, causing Tapestry’s shares to plummet by 15.8%. U.S.-listed shares of Alibaba rose by 3.9% after reporting optimistic quarterly sales, buoyed by improved consumer sentiment.

Amid escalating trade concerns, President Joe Biden recently signed an executive order curbing certain new U.S. investments in China’s sensitive tech sectors and mandating government notification for investments in other tech areas.

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