Stock market today: Wall Street rises after inflation cools

NEW YORK (AP) Wall Street is rising Wednesday, a report found inflation cooled slightly more than expected last month, which will hopefully put some more pressure on the economy.

The S&P 500 was up 0.8% in afternoon trading and was up more than 1% earlier in the morning. The Dow Jones Industrial Average was up 140 points, or 0.4%, to 34,401, at 1:23 p.m. Eastern Time, and the Nasdaq composite was up 1.1%.

The rally was widespread and everything climbed from shares of flashy Big Tech giants to banks to staid utilities.

The latest update from the US government on inflation showed that consumers paid 3% higher prices for gasoline, food and other items in June than a year earlier. That is lower than inflation of 4% in May and just over 9% last summer. Perhaps more importantly, it was a touch lower than economists had expected.

High inflation was at the center of Wall Street’s troubles as it prompted the Federal Reserve to raise interest rates at a breakneck pace. Higher rates undermine inflation by slowing down the whole economy and hurting investment prices, and they’ve already hurt banking, manufacturing and other industries.

Traders remain almost convinced that the Fed will raise the federal funds rate to a range of 5.25% to 5.50% at its two-week meeting, which would be the highest level since 2001. But expectations are also rising that this will be the last increase after rates started last year at near zero.

They will likely still pull the trigger on a rise, but it will be based more on symbolism than substance, said Brian Jacobsen, chief economist at Annex Wealth Management. He pointed to another report earlier this month that showed a slowdown in US job growth, which could also ease inflation somewhat.

Treasury yields tumbled in the bond market after cooler inflation numbers prompted traders to lower their bets for Fed action later this year.

The yield on 10-year Treasury bills fell from 3.98% at the end of Tuesday to 3.84%. It helps set rates for mortgages and other important loans.

The two-year Treasury yield fell from 4.89% to 4.74%. It seems to be more in line with expectations for the Fed.

To be sure, even if the Fed halts its hikes, analysts warn that the economy and financial markets still haven’t seen the full effect of all previous hikes. Rate hikes take a notoriously long time to filter through the system, and unexpected pain can ensue.

That is what happened in March, when high interest rates contributed to the bankruptcy of three US banks and shook confidence in the system.

Despite today’s slowdown, we continue to expect inflation to remain above the Federal Reserve’s 2% target, making policy easing unlikely anytime soon, said Gargi Chaudhuri, head of iShares Investment Strategy, Americas.

This means that she expects the rates to remain just as high. That’s also why many investors say it remains to be seen whether one of the longest predicted recessions in memory will actually happen.

In the meantime, however, stocks that benefit most from lower interest rates are ahead. So are big tech and other high-growth stocks.

Microsoft and Nvidia were the two strongest forces driving the S&P 500, each rising at least 1.6%.

Banks generally hoped to halt rate hikes. Past rate hikes have strained their business by lowering the value of loans and bonds purchased when interest rates were extremely low. After the collapse of three banks in March, their stocks plummeted as Wall Street hunted for the industry’s next potential weak link.

Comerica rose 4.4% and KeyCorp. rose 4.2% for two of Wednesday’s bigger gains in the S&P 500.

Dominos Pizza rose 11.4% for the largest gain in the index after announcing a partnership where customers can order their pies through Uber Eats.

In Europe, the The Bank of England warned on Wednesday that households are facing increasing problems of sharply rising interest rates, but expressed hope that the country’s largest banks were resilient enough to provide more aid than they had before the global financial crisis 15 years ago.

Stocks in London were up 1.8% and were also higher in much of the rest of Europe.

In Asia, equities were mixed. The Japanese Nikkei 225 then fell 0.8% North Korea has launched a long-range ballistic missile toward its eastern waters on Wednesday, two days after the North threatened with shocking consequences to protest what it called provocative US reconnaissance activity near its territory.

Hong Kong’s Hang Seng index rose 1.1%, South Korea’s Kospi rose 0.5%, and Shanghai shares fell 0.8%.