NEW YORK — An afternoon pullback left stock indexes on Wall Street with a mixed finish Thursday, erasing most of their gains from a morning rally over new signs of cooling inflation.
The S&P 500 closed 0.1% lower after having been up 1.1% in the early going. The Nasdaq fell 0.6%, while the Dow Jones Industrial Average eked out a 0.1% gain.
The indexes got a big boost early on following a report showing inflation at the wholesale level slowed more than economists expected last month. The report, which came a day after a cooler-than-expected reading on inflation at the consumer level, bolstered hopes among investors that inflation may be close to a peak and that the Federal Reserve will be less aggressive about raising interest rates than feared.
Even so, the morning rally didn’t hold. The selling coincided with a sharp upward move in bond yields and rising energy prices, which have been a central component of higher inflation.
“People stepped back and the inflation outlook isn’t that much different than what it was before,” said Willie Delwiche, investment strategist at All Star Charts. “There’s still a lot of work for the Fed to do. Maybe a little bit too much short-term euphoria kind of got in the market.”
Inflation is still painfully high, of course, and the economy has given false signals before that relief was on the way only for the rug to get pulled out from underneath investors. Some Fed officials also made comments after Wednesday’s inflation report suggesting their battle against rising prices is far from over. But enough hope for a peak in inflation and Fed aggressiveness has built that the S&P 500 has roughly halved its losses from earlier in the year, and it’s up more than 14% from its bottom in mid-June.
Technology stocks and other investments beaten down the most earlier in the year by the Fed’s aggressive rate hikes have been among the strongest, and the Nasdaq has climbed more than 20% from its low in June.
The S&P 500 slipped 2.97 points to 4,207.27 Thursday but it’s still on pace for a fourth consecutive weekly gain.
The Nasdaq fell 74.89 points to 12,779.91, and the Dow rose 27.16 points to 33,336.67. The Russell 2000 index of smaller companies rose 6.01 points, or 0.3%, to 1,975.26. The three indexes are also on pace for a weekly gain.
Technology and health care stocks were among the biggest weights on the S&P 500, keeping gains by energy companies, banks and other sectors in check.
The Walt Disney Co. jumped 4.7% after the entertainment company reported stronger profit for its latest quarter than analysts expected. It cited strong performance at its U.S. theme parks and announced price increases for its streaming services.
Companies whose profits most depend on a strong economy generally held up better. Energy stocks as a group rose 3.2% for the biggest gain among the 11 sectors that make up the S&P 500. They benefitted from rising prices of oil and natural gas. Shares of raw-material producers in the index gained 0.3%, and financial companies rose 1%.
Worries about a possible recession still loom over the market, as the Federal Reserve continues to raise interest rates to fight inflation. Such increases slow the economy by design, and some parts of the economy have already weakened under their weight, particularly the housing industry. But a resilient jobs market has offered a strong counterweight, leading to a muddied outlook for the economy.
A report on Thursday showed fewer U.S. workers filed for jobless claims last week than expected, a potentially encouraging sign about layoffs. But it was nevertheless the highest number since November.
Traders are now betting on the Fed to raise overnight interest rates by half a percentage point at its meeting next month. That’s down from the hike of 0.75 percentage points they were forecasting before Wednesday’s stunner of a report on inflation at the consumer level.
The Fed’s last two increases were by 0.75 points, accelerating from its two earlier hikes of the year, as the central bank upped its fight against high inflation. Even if the Fed can manage to slow the economy enough to stamp out inflation without causing a recession, higher interest rates pull downward on prices for all kinds of investments regardless.
Treasury yields mostly rose Thursday, after paring earlier losses. The 10-year yield rose to 2.89% from 2.79% late Wednesday, a big move.
It’s still below the two-year yield, which sits at 3.21%. That’s a relatively unusual occurrence that some investors see as a fairly reliable signal of a pending recession, though the gap between the two has narrowed somewhat.
In markets overseas, European stocks closed mixed, while Asian indexes were mostly higher.
In Thailand, the SET gave up 0.2% after the country’s central bank raised its benchmark interest rate by 0.25 percentage points to 0.75% a day earlier. The Southeast Asian country’s economy has been hard hit by the pandemic, which ravaged its all-important tourism sector.
