[New York Stock Market] Strong Close Despite US CPI Below Expectations... Dow Up 0.15%

The three major indices of the U.S. New York stock market closed slightly higher on the 10th (local time) as the July Consumer Price Index (CPI) inflation rate released fell short of expectations. However, gains narrowed in the afternoon following remarks from Federal Reserve (Fed) officials indicating that there is still work to be done in the fight against inflation.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 35,176.15, up 52.79 points (0.15%) from the previous session. The S&P 500, which is centered on large-cap stocks, ended at 4,468.83, up 1.12 points (0.03%), while the tech-heavy Nasdaq closed at 13,737.99, rising 15.97 points (0.12%).

Within the S&P 500, telecommunications and consumer discretionary stocks rose, while utilities, industrials, and real estate stocks declined. Walt Disney surged nearly 5% after announcing a subscription fee increase plan for Disney+ in its earnings report released after the previous day's market close. Win Resorts, which posted better-than-expected earnings the day before, also rose more than 2%. Chinese e-commerce company Alibaba jumped 4.6% on strong earnings. After Tapestry, which owns brands like Coach, announced it would acquire Capri Holdings, owner of Jimmy Choo and Michael Kors brands, for about $8.5 billion, Capri's stock soared nearly 56%, while Tapestry's shares dropped about 16%.

[Image source=Reuters Yonhap News]

Investors are closely watching economic indicators such as the CPI and weekly jobless claims released that morning, along with expert comments and the resulting direction of monetary policy, amid ongoing corporate earnings announcements. According to the U.S. Department of Labor, the July CPI rose 3.2% year-over-year, slightly below Wall Street's forecast of 3.3%. Although the increase steepened compared to June's 3.0%?the lowest in over two years?analysts say the overall trend indicates a continued easing. The July CPI rose 0.2% month-over-month, matching expectations. The core CPI, which excludes volatile energy and food prices, increased 4.7% year-over-year, down from 4.8% the previous month, and rose 0.2% month-over-month. The Producer Price Index (PPI) for July, reflecting wholesale prices, is scheduled for release the following day.

Immediately after the CPI release, the market saw growing optimism about a soft economic landing and expectations for interest rate stability due to ongoing disinflation. George Matheos, Chief Investment Officer at Key Private Bank, said, "Today's CPI reminds me of the good old days," adding, "Headline and core CPI each rose 0.2% month-over-month, suggesting that inflationary pressures since the pandemic are easing." Anna Wong, an economist at Bloomberg Economics, also focused on the core CPI, stating, "This pace aligns with the 2% inflation target. The Fed is expected to hold rates steady through the end of the year."

The unemployment data released that morning, which showed a continued increase for the second consecutive week, supported these expectations for a rate hold. According to the U.S. Department of Labor, new jobless claims for the week of July 30 to August 5 rose by 21,000 to 248,000, exceeding the market estimate of 230,000. The Fed has previously stated that for the tightening cycle to end, growth must remain below trend and labor market overheating must subside. Michael Contopulos of Richard Bernstein Advisors noted, "The sharp rise in jobless claims today is noteworthy," adding, "Although the pace is slow, the ongoing weakening of the labor market and continued inflation slowdown are not coincidental."

Market expectations largely favor a rate hold in September. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market priced in about a 90% chance that the Fed will keep rates unchanged at the upcoming September FOMC meeting, up from the mid-80% range before the CPI release. Although the Fed's June dot plot indicated the possibility of one more rate hike this year, investors are betting on no further increases. There are three remaining FOMC meetings this year: September, November, and December.

However, warnings persist that the path ahead remains long. Core inflation remains well above the Fed's target, and concerns about persistent service sector price pressures continue. Considering recent oil price increases, it is widely believed that the Fed is unlikely to shift policy toward rate cuts in the near term. These views, combined with remarks from Fed officials and Wall Street experts, immediately reduced the earlier gains in the New York stock market.

Mary Daly, President of the Federal Reserve Bank of San Francisco, said in an interview with Yahoo, "Most of the data came out as expected, which is good news," but added, "This is not a data point that says the victory in the fight against inflation is ours." She emphasized, "There is still much work to do," and "The Fed remains committed to achieving the 2% inflation target." David Russell, Vice President at TradeStation, also noted, "Today's CPI report is good news for the market," but pointed out that there remains a split within the Fed between hawks who advocate further hikes and doves who support holding rates steady.

Therefore, the key will be the signals Fed Chair Jerome Powell sends at the Jackson Hole forum later this month. With more than a month remaining until the September FOMC, there are still many inflation and employment indicators to monitor. Sam Milette, strategist at Commonwealth Financial Network, said, "Today's CPI supports investors' calls for a pause in rate hikes at the September FOMC, but the Fed will continue to monitor data before making a final decision." Jamie Dutta, market analyst at Vantage, added, "Since inflation data will be released a week before the September FOMC meeting, the importance of this report is somewhat diluted."

There were also remarks that even if inflation cools, high interest rates in the 5% range must be maintained for some time. Jim O'Neill, Senior Advisor at Chatham House and former Chairman of Goldman Sachs Asset Management, appeared on CNBC and said, "Major developed countries will need to maintain rates around 5% longer than the market expects," explaining, "If you want to permanently stabilize inflation, interest rates must have a kind of positive relationship with inflation."

In the New York bond market that day, the yield on the 10-year U.S. Treasury rose to 4.10%, and the 2-year Treasury yield, which is sensitive to monetary policy, climbed to around 4.84%. The Dollar Index, which measures the value of the dollar against six major currencies, rose more than 0.1% to 102.6.

Corporate earnings announcements are nearing completion. According to FactSet, over 90% of S&P 500-listed companies have reported earnings so far, with about four-fifths exceeding Wall Street expectations.

Despite inflation data falling short of expectations, oil prices declined due to profit-taking selling. On the New York Mercantile Exchange, September delivery West Texas Intermediate (WTI) crude oil closed at $82.82 per barrel, down $1.58 (1.87%) from the previous day.

This content was produced with the assistance of AI translation services.