Stocks Rally, Dollar Hits 15-Month Lows On Falling Inflation: What’s Driving Markets Wednesday? – Netflix (NASDAQ:NFLX), Invesco QQQ Trust, Series 1 (NASDAQ:QQQ), SPDR Select Sector Fund – Utilities (ARCA:XLU), Activision Blizzard (NASDAQ:ATVI), AngioDynamics (NASDAQ:ANGO), SPDR Dow Jones Industrial Average ETF (ARCA:DIA), SPDR S&P 500 (ARCA:SPY), Materials Select Sector SPDR (ARCA:XLB)
The stock market is celebrating Wednesday after annual consumer inflation fell to 3% in June, a full percentage point lower than May’s 4% reading and below estimates of 3.1%. The annual rate of inflation has now dropped for 12 months in a row, reaching its lowest point since March 2021.
The reduction in Treasury yields and the sharp decline in the dollar, which is now at its lowest level since April 2022, both contributed to the broad stock market surge.
Traders have trimmed their expectations for Fed rate hikes, and the market anticipates that July will be the final meeting at which the Fed chooses to raise rates. After the inflation data was released, expectations for a rate hike in September dropped from 18% to 12%, and expectations for a boost in November dropped from 33% to 24%.
Cues From Wednesday’s Trading:
Wednesday saw another day of increases for all U.S. stock market indexes, which are on track to post their third straight day of gains.
The S&P 500 Index rose 0.6%, the Nasdaq 100 Index gained 0.7% and the Dow Jones Industrial Average added 150 points or 0.4%.
Small caps were again the strongest link in the market, with the Russell 2000 index up by 1%.
US Index Performance On Tuesday
| Index | Performance (+/-) | Value |
| Nasdaq Composite | +0.55% | 13,760.70 |
| S&P 500 Index | +0.67% | 4,439.26 |
| Dow Industrials | +0.93% | 34,261.42 |
| Russell 2000 | +0.96% | 1,913.36 |
Analyst Color:
The resilience of the market has given confidence in the market trajectory going into the second half of the year. “The bottom line with equities is that caution is warranted given the impressive rally we have experienced in the first half of the year,” said Brian Price, Commonwealth Financial Network’s head of investment management.
The analyst sees geopolitical risks continuing. “We are not out of the woods when it comes to inflation,” he said.
“Now is a good time for investors to look at their portfolios to ensure that they are well-diversified and not overexposed to the areas of the market that may have been working too well (i.e., technology) as of late.”
Wednesday’s Trading In Major US Equity ETFs: In midday trading on Wednesday, the SPDR S&P 500 ETF Trust SPY was 0.7% higher to $445, the SPDR Dow Jones Industrial Average ETF DIA rose 0.5% to $344 and the Invesco QQQ Trust QQQ was 0.9% higher to $371, according to Benzinga Pro data.
All U.S. equity sectors traded in the green. The best performer of the day was the the Utilities Select Sector SPDR Fund XLU, up 1.4%, followed by the the Materials Select Sector SPDR Fund XLB, up 1.3%.
Upcoming Economic Data:
The Federal Reserve is scheduled to release its Beige Book at 2 p.m. EDT on Wednesday. The report provides anecdotal evidence of economic conditions in the 12 Federal Reserve districts.
Atlanta Fed President and FOMC member Raphael Bostic will speak at 1 p.m. EDT.
Cleveland Fed President and FOMC member Loretta Mester is due to speak at 4 p.m. EDT.
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Stocks In Focus:
- Netflix, Inc. NFLX rose modestly in premarket trading after UBS raised the price target for the stock from $390 to $525.
- Activision Blizzard, Inc. ATVI was little changed after Raymond James downgraded the stock from Outperform to Market Perform.
- AngioDynamics, Inc. ANGO is due to release its quarterly results before the market opens.
Commodities, Bonds, Other Global Equity Markets:
Crude oil futures rose 0.20% to $74.99 in the early European session after the commodity rallied 2.52% on Tuesday.
The benchmark 10-year Treasury note fell 0.036 percentage points to 3.946%.
Major Asian markets ended on a mixed note on Wednesday, with the Japanese, Chinese and Indian markets retreating. The rest of the markets gained ground, tracking the positive close on Wall Street on Tuesday. Sentiment in Japan soured in reaction to data showing a worse-than-expected drop in producer price inflation and weak core machinery orders.
The lackluster growth in China continues to haunt investors in the domestic market.
The Reserve Bank of New Zealand on Wednesday kept its key interest rate unchanged at 5.5% and suggested the level could be the peak rate in the current tightening cycle.
European stocks firmed up in late-morning trading on Wednesday.
Staff writer Piero Cingari updated this report midday Wednesday.
Photo via Shutterstock.
