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U.S. Stocks Pull Back Off Early Highs But Remain Mostly Positive

wallstreet sept13 11aug22 lt

After showing a strong move to the upside early in the session, stocks have given back some ground over the course of the trading day on Thursday. The major averages have pulled back well off their highs of the session, with the Nasdaq briefly dipping below the unchanged line.

Currently, the major averages are all in positive territory. While the Nasdaq is up 11.75 points or 0.1 percent at 12,866.56, the Dow is up 185.18 points or 0.6 percent at 33,494.69 and the S&P 500 is up 20.28 points or 0.5 percent at 4,230.52.

Stocks extended yesterday's rally in early trading after the Labor Department released a report showing an unexpected decrease in producer prices in the month of July.

The Labor Department said its producer price index for final demand fell by 0.5 percent in July after surging by a revised 1.0 percent in June. The decrease marked the first drop in producer prices since April 2020.

The pullback came as a surprise to economists, who had expected producer prices to edge up by 0.2 percent compared to the 1.1 percent jump originally reported for the previous month.

The report also showed the annual rate of producer price growth slowed to 9.8 percent in July from 11.3 percent in June. Economists had expected the annual rate of growth to slow to 10.4 percent.

Meanwhile, the Labor Department said core producer prices, which exclude prices for food, energy and trade services, crept up by 0.2 percent in July after rising by 0.3 percent in June.

The annual rate of core producer price growth also slowed to 5.8 percent in July from 6.4 percent in the previous month.

Following yesterday's tamer than expected consumer price inflation data, today's report added to optimism that the Federal Reserve will slow the pace of its interest rate hikes next month.

CME Group's FedWatch Tool is currently indicating a 63.5 percent chance of a 50 basis point rate hike and a 36.5 percent chance of a 75 basis point rate hike.

Buying interest was also generated in reaction to upbeat earnings news from Disney (DIS), with the entertainment giant surging by 5.7 percent.

The jump by Disney comes after the company reported fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines. Disney also revealed plans to raise prices for its Disney+ and Hulu streaming services.

The subsequent pullback by the markets may partly reflect traders cashing in on recent strength amid lingering concerns about the economy, inflation and interest rates.

Sector News

Energy stocks continue to see substantial strength in afternoon trading, benefiting from a sharp increase by the price of crude oil. Crude for September delivery is currently surging $2.43 to $94.36 a barrel.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index is up by 4.4 percent, while the NYSE Arca Oil Index and the NYSE Arca Natural Gas Index are both up by 3.1 percent.

Steel stocks are also turning in a strong performance on the day, driving the NYSE Arca Steel Index up by 1.8 percent to its best intraday level in almost two months.

Banking, housing and computer hardware stocks are also seeing notable strength, while pharmaceutical and biotechnology stocks have moved to the downside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday, with the Japanese markets closed for a holiday. China's Shanghai Composite Index jumped by 1.6 percent, while Hong Kong's Hang Seng Index surged by 2.4 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the French CAC 40 Index rose by 0.3 percent, the German DAX Index edged down by 0.1 percent and the U.K.'s FTSE 100 Index fell by 0.6 percent.

In the bond market, treasuries have turned lower over the course of the session after seeing initial strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 5.8 basis points at 2.844 percent after hitting a low of 2.730 percent.

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