The three major domestic equity indexes ended the trading day higher on Friday, snapping three days of losses, as the Street came to the conclusion that there will be slower interest rate hikes, but gains were muted by increasingly aggressive exchanges between the United States and North Korea.
Weaker-than-expected July consumer price data led to the belief that benign inflation would keep the Fed from raising rates again this year. Although this gave investors some hope after a jittery week, there were still signs of nervousness in choppy late afternoon trading, primarily due to ongoing threats between the United States and North Korea.
President Trump said on Friday that the we were “locked and loaded,” while Pyongyang accused him of driving the Korean peninsula to the brink of nuclear war. He told reporters in the late afternoon that he hoped North Korea “fully” understood the gravity of his warning about taking military action against the United States or its allies.
Those comments may have created some demand for growth sectors such as information technology and biotechnology, it soured the Street on rate-sensitive stocks.
For the week, the S&P fell 1.4 percent, while the Dow Jones Industrial Average was down 1.1 percent – their largest weekly drops since the week ending March 24 – and the Nasdaq was off 1.5 percent.
Nearly $1 trillion has been wiped out from global equity markets since Trump’s vow on Tuesday to unleash “fire and fury” on North Korea if it threatens the United States.
Five of the 11 major S&P sectors ended higher, with technology’s 0.75-percent rise leading the advancers.
However, the S&P Bank sub-sector fell 0.7 percent on dimming prospects of another rate hike this year since higher rates tend to boost bank profits.
Shares of Snap ended down 14 percent after hitting a record low following a miss on revenue and daily active users. At least 12 brokerages cut their price targets on the stock.
J.C. Penney ended the day in negative territory, down 16.6 percent after hitting a record low following the retailer’s larger-than-expected quarterly loss.
Approximately 6.15 billion shares changed hands on the major domestic equity exchanges, a number that was below the 6.29 billion share average for the last 20 sessions.
CPI Shows Minimal Increase
Consumer prices minimally higher during July as higher food costs were partly offset by falling prices for a range of other goods, indicating benign inflation. The result could mean a cautious Federal Reserve that delays raising interest rates until December.
However, with the labor market near full employment and economic growth accelerating, it is likely the Fed will announce a plan to start unwinding its massive bond portfolio at its policy meeting next month.
According to the Labor Department, its Consumer Price Index edged up 0.1 percent last month after being unchanged in June. That lifted the year-on-year increase in the CPI to 1.7 percent from 1.6 percent in June.
Removing the volatile food and energy components H prices gained 0.1 percent for the fourth straight month. The so-called core CPI rose 1.7 percent in the 12 months through July and has now increased by that margin for three consecutive months.
Despite the modest gain in consumer prices, which came on the heels of a decline in producer prices during July, the consensus seems to be that the Fed is correct and that transitory factors are holding back inflation.
Fed Chair Janet Yellen told lawmakers last month that “some special factors,” including prices for mobile phone plans and prescription drugs, were partly responsible for the low inflation readings. Mobile phone prices continued to decline in July, falling 0.3 percent.
The Fed has a two percent inflation target and tracks a measure that has been stuck at 1.5 percent since May. Moreover, inflation remains tame despite a tightening labor market, a conundrum for the central bank as it contemplates tightening monetary policy further.
Food prices rose 0.2 percent last month, driven by a surge in the cost of meat, fish, eggs, fruits and vegetables. Food prices were unchanged in June. The cost of food consumed at home increased 0.2 percent.
Consumers also paid more for prescription drugs, whose prices jumped 1.3 percent after increasing 1.0 percent in June. Prices for apparel rose 0.3 percent after four straight monthly declines. While gasoline prices were unchanged after tumbling 2.8 percent in June, electricity prices rose 0.4 percent.
Rental costs maintained their upward trend last month. Owners’ equivalent rent of primary residence rose 0.3 percent after advancing by the same margin in June.
The cost of new motor vehicles fell 0.5 percent, the biggest drop since August 2009 and the sixth consecutive monthly decline, amid slumping demand.
Low inflation is a relief for many who have seen their paychecks barely increase in recent years. In another report, the Labor Department said inflation-adjusted average hourly earnings increased 0.7 percent in the 12 months through July, slowing from June’s 0.9 percent gain.
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