Inflation concerns fuel DJI, S&P 500 but nothing for Nasdaq

  • US equities repeat Tuesday’s moves as DJI, S&P 500 refresh record tops but Nasdaq prints mild losses.
  • US CPI confirms the Fed’s “transitory” outlook, Biden battles Republicans’ plan to stall budget talks.
  • MS takes Virgin Galactic down, Perrigo slumps on earnings disappointment.
  • Second-tier US data, qualitative factors to direct short-term market moves.

US shares mark a mixed daily performance on Wednesday, mostly higher, even as inflation data hints that the easy money is going nowhere, at least for now. The reason could be traced to the market’s concern over covid and chatters over US debt limit negotiations.

Read: Forex Today: Dollar down but not beaten

Dow Jones Industrial Average (DJI) posted a record daily closing around 35,485, up 220 points or 0.62%, whereas the S&P 500 Futures refreshed all-time high to 4,450 before closing around 4447, up 10 points or 0.25%. Nasdaq was a spoiler for one more day as it dropped 0.16% or 23 points to 14,765 by the end of Wednesday’s North American session.

The US Consumer Price Index (CPI) for July backs the Federal Reserve’s (Fed) “transitory” outlook for inflation. The headline CPI remained unchanged at 5.4% YoY versus 5.3% forecast whereas the core CPI, ex Food & Energy, eased to 4.3% from 4.5% previous readouts.

Also favoring the equity bulls were statements from Fed Reserve Bank of Kansas City President Esther George who said, “the time has come to dial back the settings.” It should be noted, however, that the policymaker ruled out rate hikes while also saying, the road ahead to policy normalization “is likely to be a long and bumpy.”

On the contrary, the multi-day high death toll in the US and steady rise in Chinese covid infections do challenge the economic recovery from the pandemic. Also, the US Senate’s infrastructure spending passage favors the risk-on mood but the Republican Party’s readiness to stop Democrats when they start negotiating the budget and debt limit questions the optimists. Recently, US President Joe Biden said, per Reuters, that he is not worried about the debt ceiling as Republicans will not let the US default.

It’s worth observing that the US Dollar Index (DXY) refreshed the highest levels since early April before stepping back from 93.19 whereas the US 10-year Treasury yields eased to 1.33% by the press time.

Talking about stock-specific news, Morgan Stanley (MS) downgrade Virgin Galactic, resulting in around 12.7% of the daily loss. On the same line was Perrigo that dropped around 13% as earnings and revenue lagged market consensus for the Q2 2021. Alternatively, McAfee rose 10.0% on upbeat results whereas Caterpillar and Deere & Co. benefited from the passage of the infrastructure spending package.

Looking forward, US Producer Price Index (PPI) for July and the Weekly Jobless Claims, coupled with the Fedspeak, may offer intermediate moves to the investors amid a likely dull day. Though, risk catalysts are the key to follow for a clearer view of the markets.

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