U.S. Stocks Pull Back Off Early Highs But Remain Firmly Positive

After moving sharply higher early in the session, stocks have given back some ground but remain mostly positive in afternoon trading on Wednesday. The early upward move lifted the Nasdaq and the S&P 500 to their best intraday levels in over a year.

Currently, the Dow is up 142.66 points or 0.4 percent at 34,404.08, the Nasdaq is up 148.29 points or 1.1 percent at 13,908.99 and the S&P 500 is up 35.54 points or 0.8 percent at 4,474.80.

The early rally on Wall Street came following the release of a highly anticipated Labor Department report showing consumer prices increased by less than expected in the month of June.

The Labor Department said its consumer price index rose by 0.2 percent in June after inching up by 0.1 percent in May. Economists had expected consumer prices to climb by 0.3 percent.

Excluding food and energy prices, core consumer prices still increased by 0.2 percent in June after rising by 0.4 percent in May. Core consumer prices were also expected to rise by 0.3 percent.

The report also showed the annual rate of consumer price growth slowed to 3.0 percent in June from 4.0 percent in May. Economists had expected the rate of growth to slow to 3.1 percent.

The annual rate of core consumer price growth also decelerated to 4.8 percent in June from 5.3 percent in May. The rate of growth was expected to slow to 5.0 percent.

While the Federal Reserve is still widely expected to raise interest rates by another quarter point later this month, the data has led to renewed optimism that will be the end of the central bank’s rate-hiking cycle.

“The rate hike for this month is likely a foregone conclusion and this report won’t change that, but after the Fed raises rates by 25 bps at the end of the month, this report adds a lot more weight to the doves’ arguments, who are going to push for another pause in September and potentially an end to rate hikes for the year,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

He added, “To be fair, we have a lot more data between now and September’s meeting, let alone the November meeting, which is likely to be the next ‘live’ meeting after July, but the evidence is building that the Fed will ‘watch and wait’ after they raise rates this month.”

Later in the day, the Fed is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

Sector News

Gold stocks continue to turn in some of the market’s best performances on the day, resulting in a 4.9 percent spike by the NYSE Arca Gold Bugs Index. With the surge, the index has reached its best intraday level in a month.

The rally by gold stocks comes amid a sharp increase by the price of the precious metal, with gold for August delivery soaring $26.90 to $1,964 an ounce.

Substantial strength also remains visible among steel stocks, as reflected by the 2.4 percent jump by the NYSE Arca Steel Index. The index reached its best intraday level in four months earlier in the session.

Banking, housing and semiconductor stocks are also seeing considerable strength on the day, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan’s Nikkei 225 Index slid by 0.8 percent, while Hong Kong’s Hang Seng Index jumped by 1.1 percent.

Meanwhile, the major European markets all showed strong moves to the upside on the day. While the U.K.’s FTSE 100 Index shot up by 1.8 percent, the French CAC 40 Index and the German DAX Index surged by 1.6 percent and 1.5 percent, respectively.

In the bond market, treasuries have spiked in reaction to the tamer-than-expected inflation data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 12.9 basis points at 3.851 percent.

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