The S&P 500® index (SPX) and the Nasdaq Composite® ($COMP) climbed to record closes for the fourth consecutive trading day Thursday as another batch of cooler-than-expected inflation readings buoyed investors.
The rest of the market was a mixed bag, with the Dow Jones Industrial Average® ($DJI) slipping for the third trading day in a row.
Early Thursday, the Labor Department reported its overall Producer Price Index (PPI) fell 0.2% in May from April, contrary to expectations for a 0.1% increase. Core PPI, which excludes food and energy prices, was unchanged versus expectations for a 0.3% rise. The PPI numbers came one day after a softer-than-expected Consumer Price Index (CPI) fueled hopes that inflation may be back on an easing track that could eventually compel interest rate cuts from the Federal Reserve.
Despite the favorably received inflation data, the broader market tone was relatively muted. That may reflect some "buyer's exhaustion" as well as an "everything-is-priced-in" mindset for the near term, referring to economic data and earnings, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.
Stocks have recently been in "melt-up" mode, driven by bullish momentum led by mega caps, such as Apple (AAPL) and Nvidia (NVDA), as well as a sharp drop in Treasury yields this week, according to Peterson.
"However, with second-quarter earnings season a month away, we may have a lack of near-term catalysts to push stocks even higher," he added. "Risk/reward is skewed to the downside from a near-term trading basis, so some mean reversion over the next week or so wouldn't surprise me."
Here's where the major benchmarks ended:
• The S&P 500 index gained 12.71 points (0.2%) to 5,433.74; the Dow Jones Industrial Average lost 65.11 points (0.2%) to 38,647.10; the Nasdaq Composite rose 59.12 points (0.3%) to 17,667.56.
• The 10-year Treasury note yield (TNX) fell about 5 basis points to 4.246%.
• The Cboe Volatility Index® (VIX) declined 0.10 to 11.94.
Semiconductors were among the market's strongest performers behind a 12% rally in shares of Broadcom (AVGO), which reported better-than-expected quarterly results late Wednesday. The PHLX Semiconductor Index (SOX) jumped 1.5% and ended at a record close for a fourth consecutive trading day. Energy companies were among the weakest sectors as WTI Crude Oil (/CL) futures dropped 0.6% after reaching a two-week high Wednesday.
The major averages are tracking for another strong week. The S&P 500 is up 1.6% so far this week and is on pace for its seventh weekly gain out of the past eight.
Stocks on the move
The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:
• Chipotle Mexican Grill (CMG) added 3% and touched a record high at nearly $3,300 after Goldman Sachs (GS) initiated coverage of the stock with a "buy" rating and a $3,730 price target, citing a "still healthy" outlook for restaurant spending.
• Dave & Buster's (PLAY) sank 11% after the restaurant chain's first-quarter sales fell short of expectations.
• Kimberly-Clark (KMB) added 3.1% after Bank of America (BAC) double upgraded the stock to "buy" from "underperform" and raised its price target to $160 from $115, citing expectations the paper products maker will "break the correlation between pulp and energy inputs" and improve its margins and market share.
• Signet Jewelers (SIG) tumbled 15% after the company reported slightly weaker-than-expected revenue. During the company's earnings call, management also noted continued pressure on consumers and stepped-up discounting.
• Tesla (TSLA) gained 2.9% following reports CEO Elon Musk said he expected shareholders to pass his $56 billion pay package and approve his request to move the company's headquarters to Texas.
• Ulta Beauty (ULTA) rose 1.6% after Oppenheimer (OPY) named the beauty products retailer a top pick.
Among other companies, shares of design software maker Adobe (ADBE) fell 0.3% ahead of the company's quarterly results, which were expected to be released after Thursday's close. Adobe is down 23% so far this year after releasing disappointing guidance in March, and the stock remains near a 12-month low hit in late May. The stock's weakness may also reflect perceptions Adobe's AI efforts lag competitors.
Adobe said previously it expected adjusted earnings per share of $4.35 to $4.40 and revenue of $5.25 billion to $5.30 billion for its fiscal 2024 second quarter.
Welcome news from PPI, CPI
This week's PPI and CPI reports brought welcome news for investors, providing further evidence that inflation's three-month upswing to start 2024 was a short-term blip and that price pressures may be resuming a downward path that was held most of last year.
Market enthusiasm may have been tempered, however, by Federal Reserve Chair Jerome Powell's comments Wednesday, following the conclusion of the Federal Open Market Committee's (FOMC) latest meeting.
During a post-meeting press briefing, Powell noted encouraging signs in Wednesday's CPI numbers but expressed caution over the prospect of rate cuts. "Inflation has eased notably over the last two years but remains above our 2% goal," Powell said. The CPI report "builds confidence, but we don't have the confidence that would support loosening policy at this time."
The FOMC also released an updated economic forecast that included a downsized "dot-plot" projection for just one quarter-point cut this year. Earlier this year, the FOMC's dot-plot signaled three quarter-point cuts. The Fed left its benchmark funds rate target unchanged at 5.25% to 5.5%, as expected.
The PPI report was encouraging, but the Fed likely needs to see a few more months of similarly subdued inflation data before the central bank is ready to lower rates for the first time since 2020.
Lower energy costs contributed to the decline in overall PPI, while a drop in transportation and warehousing services helped keep the core rate flat, according to the Bureau of Labor Statistics (BLS). Food prices also fell in May. On an annual basis, PPI rose 2.2%, down from 2.3% in April, while core PPI rose 2.3%, down from 2.5% in April.
Also Thursday, the Labor Department's Initial Weekly Jobless Claims rose 13,000 from the prior week's 229,000, sending the four-week moving average up to 227,000.
Late Thursday, traders priced approximately 68% odds the fed funds rate will be at least one quarter-point lower following the FOMC's September meeting, about the same as a week ago, based on the CME FedWatch Tool. The tool priced 88% odds chance the rate will be unchanged after the July FOMC meeting.
