Despite another better-than-expected inflation report, stocks surrendered an early advance on Thursday and finished the session mixed. However, the major indices are poised for another week of gains heading into Friday.
The Dow managed a slight rise of 0.08% (or around 27 points) to 33,336.67, but the NASDAQ dropped 0.58% (or nearly 75 points) to 12,779.91 and the S&P slipped 0.07% to 4207.27.
The PPI report actually declined 0.5% in July when expectations were for a 0.2% increase. Core PPI also marked an improvement. The print helped stocks to a solid morning rally, but the advances waned as the day progressed.
Is the market already tired of cooler inflation prints? Of course not. However, yesterday’s CPI release, which ‘only’ rose by 8.5% in July instead of expectations at 8.7%, took a lot of oxygen out of the room. The NASDAQ surged by nearly 3% yesterday, while the S&P and Dow were up 2.1% and 1.6%, respectively. So it was prudent to take some profit off the table.
“Stocks likely got a little ahead of themselves on this positive inflation news,” said Jeremy Mullin. “For the most part, the rally had priced in some relief. The last two days showed us inflation relief, so when we got the up move it became a sell the news event.”
In other news, jobless claims continue to slowly move higher. The 262K print was slightly higher than expectations of 260K and more than the previous week’s downwardly revised 248K. Such results continue to suggest that the job market may be cooling a bit, though it was only last Friday when the Government Employment Situation nearly doubled expectations with a July total of 528K.
Meanwhile, shares of Disney (DIS) rose 4.7% on Thursday. The media powerhouse beat on both the top and bottom lines in its fiscal third quarter report last night amid solid results for its theme parks and Disney+.
Despite seeing some red on Thursday, stocks are still in positive territory for the week heading into Friday. The S&P and NASDAQ are going for four straight weeks in the green, while the Dow would make it three out of the past four.
Today's Portfolio Highlights:
Home Run Investor: The portfolio picked up a “somewhat recession proof” name on Thursday by adding Mercer International (MERC), a Zacks Rank #1 (Strong Buy) paper producer. The company topped the Zacks Consensus Estimate in each of the last four quarters with an average surprise of 11%. In addition to sharply rising earnings estimates, Brian considers the stock’s valuation to be “incredible”. He also appreciates that margins have advanced to 14.1% from 10.8% over the past three quarters. “If there is another beat next quarter, we should see this stock dramatically higher,” said the editor. The service also sold Kronos Worldwide (KRO) today. Read the complete commentary for more.
Income Investor: "Stocks continue to hover near important technical levels. August has tended to be quite weak in midterm years, but the action so far is undoubtedly bullish, and the rally that began in mid-June may still have some legs. We’ll continue to maintain a close eye on our positions as things can change quickly." -- Bryan Hayes
ETF Investor: "The inflation reports released yesterday and today were softer than expected and raised hopes that they may lift the pressure off the Federal Reserve to raise rates aggressively.
"The CPI index rose 8.5% in July from a year ago, down from 9.1% increase in June, thanks mainly to the decline in energy prices. Food and shelter costs remained high but used car prices and airline fares have come down.
"The national average for gas prices fell below $4 per gallon for the first time since March. The average had surged 11.2% in June.
"The PPI index, released this morning, was up 9.8% in July from a year ago, versus 11.3% spike in June. Both these reports, which reflect consumer and producer prices, now suggest that inflationary pressures could be easing finally." -- Neena Mishra
Have a Good Evening,
Jim Giaquinto
