Wall St set to extend rally on signs of disinflation
By Johann M Cherian and Bansari Mayur Kamdar
(Reuters) – Wall Street was set to open higher on Thursday after producer prices data provided further evidence of inflation cooling in the world’s largest economy, and stoked hopes that the Federal Reserve will soon end its monetary policy tightening.
A Labor Department report showed the producer prices index (PPI) cooled to 0.1% in June from 0.9% in May. Economists polled by Reuters expected producer inflation to have eased to 0.4%.
“This is further confirmation that inflation in the pipeline is beginning to wane,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
Traders continue to expect a 21% probability that the central bank will hike borrowing costs in its November meeting. [IRPR]
Markets have fully priced in a 25-basis-point rate hike later in July.
Rate-sensitive megacap growth names like Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL) added 0.6% and 1.6%, respectively, in premarket trading.
Slightly weighing on sentiment, a Labor Department report showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, indicating that the labor market remains tight
On Wednesday, the Nasdaq and the S&P 500 closed at over a year’s high, with megacap stocks leading gains after the CPI report showed consumer prices registered their smallest annual increase in more than two years.
At 08:45 a.m. ET, Dow e-minis were up 70 points, or 0.2%, S&P 500 e-minis were up 17.25 points, or 0.38%, and Nasdaq 100 e-minis were up 114.5 points, or 0.74%.
As U.S. inflation cools and growth remains resilient, bullish investors are now counting on the second-quarter earnings season to provide more fuel for the rally in stocks.
“The market is in a position to continue to rally, but as the flow of earnings hits Wall Street, investors will be very closely watching forecast rather than results,” said Cardillo.
PepsiCo (NASDAQ:PEP) added 2.4% on raising its annual revenue and profit forecasts for the second time, banking on resilient demand for its snacks and beverages as well as price hikes.
Delta Air Lines (NYSE:DAL) gained 3.9% after it lifted its full-year profit outlook following stronger-than-expected second-quarter earnings on a relentless post-pandemic travel boom.
Other airlines including American Airlines (NASDAQ:AAL), United Airlines and Southwest Airlines (NYSE:LUV) added between 2.2% and 2.7%.
Overall, earnings for the S&P 500 constituents are expected to have dropped 6.4% in the second quarter, Refinitiv data showed.
Among other movers, Walt Disney (NYSE:DIS) rose 0.7% after the film conglomerate’s board extended Chief Executive Officer Robert Iger’s contract by two years.
Meta Platforms, which recently launched Twitter-rival Threads, outpaced gains among big growth stocks, adding 1.4%. It is set to release a commercial artificial intelligence (AI) model, as per a report.
Markets will parse remarks by policymakers during the day, including Fed Board Governor Christopher Waller, to gauge the tone of the central bank on monetary policy tightening.