U.S. Stocks Holding On To Strong Gains After Early Rally

After moving sharply higher early in the session, stocks continue to see significant strength in afternoon trading on Wednesday. The major averages have moved than offset yesterday’s losses, with the Dow and the S&P 500 reaching three-month highs.

The major averages have moved roughly sideways in recent trading, hovering near their best levels of the day. The Dow is up 487.06 points or 1.5 percent at 33,246.47, the Nasdaq is up 324.46 points or 2.6 percent at 12,818.39 and the S&P 500 is up 80.59 points or 2 percent at 4,203.06.

The early rally on Wall Street reflected a positive reaction to a highly anticipated Labor Department report on consumer price inflation, which showed prices unexpectedly came in flat in the month of July.

The Labor Department said its consumer price index was unchanged in July after jumping by 1.3 percent in June. Economists had expected consumer prices to edge up by 0.2 percent.

Compared to the same month a year ago, consumer prices in July were up by 8.5 percent, reflecting a bigger than expected slowdown from the 9.1 percent spike in June.

The annual rate of price growth was expected to slow to 8.7 percent from the four-decade high seen in the previous month.

Meanwhile, the report said core consumer prices, which exclude food and energy prices, rose by 0.3 percent in July after climbing by 0.7 percent in June. Core prices were expected to increase by 0.5 percent.

The annual rate of core consumer price growth was unchanged at 5.9 percent, while economists had expected an acceleration to 6.1 percent.

The tamer than expected inflation data has led to speculation that the Federal Reserve will slow the pace of interest rate hikes at its September meeting.

CME Group’s FedWatch tool is currently indicating a 58.5 percent chance of a 50 basis point rate hike and a 41.5 percent chance of a 75 basis point rate hike.

“Today’s inflation report might lead the Fed to downshift the size of its rate hikes to 50bps in September,” said Kathy Bostjancic, Chief U.S. Financial Economist at Oxford Economics.

She added, “However, we still see 75bps as likely given the ongoing inflation pressures, still elevated inflation readings, and ongoing tight labor market that is leading to large wage gains.”

Sector News

Computer hardware stocks have shown a substantial move to the upside on the day, rebounding strongly following the sharp pullback seen in the previous session.

Reflecting the strength in the sector, the NYSE Arca Computer Hardware Index is surging by 4.2 percent to its best intraday level in two months.

Significant strength also remains visible among airline stocks, with the NYSE Arca Airline Index soaring by 4 percent.

Interest rate-sensitive housing stocks also continue to turn in a strong performance, resulting in a 3.7 percent jump by the Philadelphia Housing Sector Index.

Semiconductor, chemical and banking stocks are also seeing considerable strength on the day, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan’s Nikkei 225 Index slid by 0.7 percent, while Hong Kong’s Hang Seng Index plunged by 2 percent.

Meanwhile, the major European markets moved to the upside on the day. While the German DAX Index jumped by 1.2percent, the French CAC 40 Index climbed by 0.5 percent and the U.K.’s FTSE 100 Index rose by 0.3 percent.

In the bond market, treasuries have pulled back well off their early highs but remain positive. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 3.6 basis points at 2.761 percent.

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