Prices on consumer and wholesale goods aren't rising as much as feared, and that has been good for stock prices.
Two straight days of soft inflation data lifted the S&P 500 index to an all-time high. On Thursday, the Labor Department reported that wholesale prices were unchanged in July, defying predictions from economists who saw them rising. The reading, which followed a mellow consumer-price index print the day before, is resetting expectations about what the Federal Reserve will do next month -- and in a positive way.
Between the war in Iran's impact on energy prices and a new Fed chair who Wall Street suspects is more hawkish than his predecessor, inflation and high interest rates had re-emerged as investors' top concerns.
"Shifting expectations for Fed policy may contribute to periods of equity volatility, but we expect the global stock rally to continue," said Ulrike Hoffmann-Burchardi, global head of equities at the UBS Chief Investment Office.
The S&P 500 rose 0.7% to close at a record high for the 27th time this year. The tech-heavy Nasdaq Composite Index added 0.8%, while the Dow Jones Industrial Average climbed 0.1%, or 70 points.
Traders are now pricing in a two-thirds chance the Fed will hold benchmark rates steady at its meeting next month. Just a month ago, they saw a 75% chance the central bank would hike. Another CPI report is due before the Fed's next rate decision in September, so it is far from a done deal.
An increase in rates could pressure consumers by raising borrowing costs or cast a chill on the tech industry's debt-powered AI investment cycle, which is already struggling to contend with high borrowing costs.
For now, the outlook looks better. The benchmark 10-year Treasury yield dropped to 4.64% Thursday, down from a nearly two-year high of 4.745% on July 31. Short-term government bond yields, which are heavily influenced by benchmark rate expectations, also dropped, and are sitting almost a quarter percentage point below last month's high.
That helped power a rally in technology, communication services and real-estate sectors, which led the S&P 500 Thursday. All are sensitive to borrowing costs.
"The 10-year yield has remained uncomfortably high," said Jeff Buchbinder, chief equity strategist at LPL Financial. While that's good for bond buyers, stock investors would prefer they keep drifting lower, he added.
Chip makers Sandisk, Micron Technology and Intel were among the best performers in the S&P 500 Thursday, as they have been all year. Workday, the HR software provider, was the index's top performing stock, jumping 18% after a report that the private-equity firm Silver Lake is in talks to take it private.
Online ticket marketplace StubHub was among the laggards, extending the total share-price loss since its IPO last year to 65%. It reported a quarterly loss tied to increased costs surrounding the World Cup, a day after The Wall Street Journal reported it was facing a flood of complaints related to ticketing issues.