U.S. Stocks Close Only Slightly Higher As Early Rally Evaporates

After moving sharply higher early in the session, stocks largely offset the rally over the course of the trading day on Thursday. The major averages pulled back well off their highs of the session, ending the day just above the unchanged line.

The Dow surged by more than 450 points in early trading but ended the day up just 52.79 points or 0.2 percent at 35,176.15. The Nasdaq edged up 15.96 points or 0.1 percent at 13,737.99, while the S&P 500 crept up 1.12 points or less than a tenth of a percent to 4,468.83.

The early rally on Wall Street came after the Labor Department released a report showing the annual rate of consumer price inflation accelerated by slightly less than expected in the month of July.

The report said the annual rate of growth by consumer prices accelerated to 3.2 percent in July from 3.0 percent in June, while economists had expected the pace of price growth to accelerate to 3.3 percent.

The Labor Department also said its consumer price index rose by 0.2 percent on a monthly basis in July, matching the uptick seen in June as well as expectations.

Excluding food and energy prices, core consumer prices also rose by 0.2 percent for the second straight month in July, in line with estimates.

Meanwhile, the annual rate of growth by core consumer prices slowed to 4.7 percent in July from 4.8 percent in June. The rate of growth was expected to be unchanged.

While the data reinforced expectations the Federal Reserve will leave interest rates unchanged next month, economists suggested “sticky” core inflation could leave the door open for the Fed to resume raising rates in November.

“Core inflation stickiness is untangling, but for the Fed to declare victory on inflation, it is imperative that it unwinds at a faster and more decisive pace,” said Quincy Krosby, Chief Global Strategist for LPL Financial.

She added, “The Fed’s dove versus hawk tug-of-war appears now to be predicated on an ‘insurance’ rate hike, which according to the hawks will help keep inflation expectations anchored.

A separate Labor Department report showed first-time claims for U.S. unemployment benefits rose by much more than expected in the week ended August 5th.

The report said initial jobless claims climbed to 248,000, an increase of 21,000 from the previous week’s unrevised level of 227,000. Economists had expected jobless claims to inch up to 230,000.

Sector News

Despite the pullback by the broader markets, networking stocks saw continued strength, with the NYSE Arca Networking Index climbing by 1.9 percent after ending Wednesday’s trading at its lowest closing level in well over two months.

Within the networking sector, Infinera (INFN) and Viasat (VSAT) posted standout gains after reporting their quarterly results.

Telecom stocks also held on to notable gains, driving the NYSE Arca North American Telecom Index up by 1.0 percent to a three-month closing high.

On the other hand, housing stocks came under pressure over the course of the session, dragging the Philadelphia Housing Sector Index down by 1.2 percent.

Considerable weakness also emerged among steel stocks, as reflected by the 1.1 percent drop by the NYSE Arca Steel Index.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan’s Nikkei 225 Index advanced by 0.8 percent, while China’s Shanghai Composite Index rose by 0.3 percent.

The major European markets also moved to the upside on the day. While the French CAC 40 Index surged by 1.5 percent, the German DAX Index jumped by 0.9 percent and the U.K.’s FTSE 100 Index increased by 0.4 percent.

In the bond market, treasuries came under pressure late in the trading day after showing a lack of direction for much of the session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 6.8 basis points to 4.080 percent.

Looking Ahead

A Labor Department report on producer price inflation may attract attention on Friday along with the University of Michigan’s preliminary reading on consumer sentiment in August, which includes readings on inflation expectations.

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