The Dow Jones Industrial Average and S&P 500 index rose on Thursday to close at record highs as health insurers gained after the Trump administration scrapped a plan designed to rein in prescription drug prices, while financial shares climbed with bond yields. A 5.5% gain in UnitedHealth helped the Dow close above 27,000 points for the first time. Cigna surged 9.2%.
The abandoned proposal would have required health insurers to pass on billions of dollars in rebates they receive from the pharmaceutical companies to Medicare patients.
Meanwhile, companies such as Merck and Pfizer fell following the news, and the Nasdaq biotech index .NBI was down 1.5%. Merck ended down 4.5% while Pfizer was down 2.5%. The S&P 500 healthcare index ended the trading day unchanged.
The S&P 500 traded above 3,000 for a second day in a row but again failed to close above that milestone, suggesting investor cautiousness.
Helping to support stocks were comments from Federal Reserve Chairman Jerome Powell, which supported investor expectations for an interest-rate cut.
In his first day of testimony before Congress on Wednesday, Powell confirmed the U.S. economy was still under threat from disappointing factory activity, tame inflation and a simmering trade war and said the Fed stood ready to “act as appropriate.” Powell testified before the Senate Banking Committee on Thursday.
Iron Mountain fell after Bank of America Merrill Lynch downgraded the document storage company’s shares to “underperform,” citing recent declines in recycled paper pricing.
A Labor Department report indicated consumer prices rose by the most in nearly 1-1/2 years in June, but that was unlikely to change expectations the Fed would cut rates this month.
Approximately 6.17 billion shares changed hands on the major domestic equity exchanges on Thursday, as compared to the 6.72 billion share average over the past 20 trading days.
Consumer Prices Up Sharply
The consumer price index (CPI) rose by the most in nearly 1-1/2 years in June amid solid gains in the costs of a range of goods and services. According to a report released by the Labor Department Thursday morning, the core CPI, which excludes the volatile food and energy components, rose 0.3% last month.
That increase was the largest since January 2018 and followed four straight monthly gains of 0.1%. The index saw strong increases in the prices for apparel, used cars and trucks, as well as household furnishings.
There were also increases in the cost of healthcare and rents. For the 12 months ending in June, the core CPI climbed 2.1% after advancing 2.0% in May.
The headline CPI edged up 0.1% last month, held back by cheaper gasoline and food prices. The CPI rose 0.1% in May. It increased 1.6% year-on-year in June after rising 1.8% in May.
The Fed, which has a 2% inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index increased 1.5 percent year-on-year in May and has undershot its target this year.
Fed Chairman Jerome Powell on Wednesday testified that the Fed would “act as appropriate” to protect the economy from rising risks such as trade tensions and slowing global growth. Powell also said, “there is a risk that weak inflation will be even more persistent than we currently anticipate.”
Scheduled to meet on July 30-31, the Fed had previously downgraded its inflation projection for 2019 to 1.5% from the 1.8% projected last March.
Gasoline prices in June fell 3.6% after falling 0.5% in May. Food prices were unchanged last month after rebounding 0.3% in May. Food consumed at home fell 0.2%.
Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3% in June, matching May’s gain. Healthcare costs increased 0.3%, after a similar advance in May.
Apparel prices rose 1.1% after being unchanged in May. Prices for these goods fell in March and April after the government introduced a new method and data to calculate their cost. Used motor vehicles and trucks prices jumped 1.6% in June after declining for four straight months.
The price of household furnishings and operations rose 0.8%. It was the largest gain for that sector since 1991 and was driven by rising costs for gardening and lawncare services.
Unemployment Claims Fall
The number of new applications for unemployment benefits fell to a three-month low last week, suggesting sustained labor market strength that could help support a slowing economy.
According to a Labor Department report released Thursday morning, initial claims fell by 13,000 claims to a seasonally adjusted 209,000 claims for the week ended July 6, the lowest level since April.
Data for the prior week was revised to show 1,000 more applications received than previously reported.
The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell by 3,250 claims to 219,250 claims last week.
The Labor Department said no claims were estimated last week.
The claims data is entering a period of volatility as auto manufacturers temporarily shut down assembly plants for summer retooling. Companies carry out the plant closures at different times, which can throw off the model the government uses to strip out seasonal fluctuations from the data.
Nonetheless, there is still no sign of an increase in layoffs related to a trade war between the United States and China, which has helped to dim the economy’s outlook and raise expectations for an interest rate cut this month, the first in a decade.
The economy is slowing as last year’s massive stimulus from tax cuts and more government spending fades. Manufacturing is struggling, the trade deficit is widening again, consumer spending is rising moderately, and the housing sector remains mired in a soft patch.
Despite the rising risks to the 10-year old economic expansion, the longest in history, the labor market remains healthy. The economy created 224,000 job in June. While the unemployment rate ticked up one-tenth of a percentage point to 3.7%, that was because more people entered the labor market, a sign of confidence in their employment prospects.
Thursday’s claims report also showed the number of people receiving benefits after an initial week of aid increased 27,000 to 1.72 million for the week ended June 29, the highest level since March. The four-week moving average of the so-called continuing claims rose 5,750 to 1.69 million.