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U.S. Stocks Continue to Advance on More Encouraging Inflation Data

U.S. stocks extended gains on Thursday after another key inflation report came in lighter than Wall Street expected and bolstered the chances that the Federal Reserve’s rate hike cycle is nearing its end.

The Dow Jones Industrial Average rose 47.71 points, or 0.14 percent, to 34,395.14. The S&P 500 added 37.88 points, or 0.85 percent, to 4,510.04. The Nasdaq Composite Index increased 219.61 points, or 1.58 percent, to 14,138.57.

Nine of the 11 primary S&P 500 sectors ended in green, with communication services and technology leading the gainers by rising 2.32 percent and 1.49 percent, respectively. Meanwhile, energy and health fell 0.45 percent and 0.01 percent, respectively.

U.S. stocks recorded their fourth straight day of gains on Thursday, while the dollar and bond yields slid after new data showing inflation slowed further.

Treasury yields retreated from their cycle highs, with the benchmark 10-year Treasury yield dipping to around 3.77 percent. The dollar index on Thursday dropped to its lowest level in more than a year, adding another tailwind to the equity rally.

The U.S. Bureau of Labor Statistics reported on Thursday that producer price index (PPI) nudged up 0.1 percent month on month in June, lower than market forecast of a 0.2-percent increase.

On a yearly basis, the index gained 0.1 percent, well below market expectations of a 0.4 percent increase, rising at the slowest pace since August 2020.

The so-called core PPI, which excludes volatile items like food and energy, climbed 0.1 percent on a monthly basis and 2.6 percent on a yearly basis in June, in line with market expectations, according to the U.S. Bureau of Labor Statistics.

“Despite the good news on inflation, our view is that the Fed will be reluctant to declare victory just yet. But the data do support our base case that an end to hikes is now in sight, which will add to pressure on the U.S. dollar,” said an analysis published by UBS Global Wealth Management on Thursday.

“While encouraging inflation data is positive for stocks, we still view the risk-reward balance as more positive for fixed income,” it added.

Investors were also digesting other economic data released on Thursday. U.S. initial jobless claims dropped by 12,000 to 237,000 in the week ending July 8, suggesting U.S. labor market stayed resilient, according to a Labor Department report.

“The PPI confirmed the cooling inflation shown in yesterday’s CPI, but the lower-than-expected weekly jobless claims number was a reminder of continued labor market tightness,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, in an interview with CNBC.

The inflation data has raised hopes that the Fed is going to be able to bring down inflation without steering the U.S. economy into a recession, said Nigel Green, CEO of the advisory and asset-management deVere Group, in an interview with MarketWatch.

“Cooling inflation and a strong and resilient labor market suggests that no recession will come in 2023. We believe the Fed has pulled off the perfect soft landing,” he said.