US equities reached record highs, as Fed Chairman Jerome Powell’s two-day semiannual Congressional monetary policy testimony and a tame read on consumer prices kept Fed rate cut hopes alive. Treasury yields were higher and the U.S. dollar ticked lower, with a decline in jobless claims the only other item on the economic calendar, while crude oil prices lost slight ground and gold came under pressure. In equity news, Delta Air Lines increased its guidance and pharmacy benefit managers got a boost on the White House decision to withdraw a proposal to eliminate rebates from government drug plans, while Fastenal and Bed Bath & Beyond disappointed with their respective results.
The Dow Jones Industrial Average (DJIA) rose 228 points (0.9%) to 27,088, the S&P 500 Index gained 7 points (0.2%) to 3,000, while the Nasdaq Composite declined 7 points (0.1%) to 8,196. In light-to-moderate volume, 684 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.23 to $60.20 per barrel and wholesale gasoline was down $0.02 at $1.99 per gallon. Elsewhere, the Bloomberg gold spot price decreased $11.59 to $1,407.43 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% lower to 97.05.
The Consumer Price Index (CPI) rose 0.1% month-over-month (m/m) in June, above the Bloomberg estimate of a flat reading, and matching May’s unrevised increase. The core rate, which strips out food and energy, was 0.3% higher m/m, versus expectations of a 0.2% increase and north of May’s unadjusted 0.1% rise. Y/Y, prices were 1.6% higher for the headline rate, matching forecasts and below May’s unadjusted 1.8% rise. The core rate was up 2.1% y/y, north of projections calling for it to match May’s unadjusted 2.0% gain. Prices grew for shelter, apparel, used cars and trucks, household furnishings, medical care and motor vehicle insurance, while declines were seen in energy, recreation, airline fares and personal care. The food index was little changed as prices for food away from home rose but food at home declined.
Weekly initial jobless claims declined by 13,000 to 209,000, compared to estimates of 221,000, with the prior week’s figure being revised higher by 1,000 to 222,000. The four-week moving average dropped by 3,250 to 219,250, while continuing claims rose by 27,000 to 1,723,000, above estimates of 1,683,000.
The Fed remained in focus as Federal Reserve Chairman Jerome Powell concluded his two-day semiannual monetary policy testimony on Capitol Hill in front of the Senate Banking Committee, amid the backdrop of cooled rate cut expectations after last week’s stronger-than-expected June nonfarm payroll report and the recent G-20 summit that delivered a trade truce between the U.S. and China. Yesterday, the U.S. dollar declined and Treasury yields were mixed, falling on the short-end of the curve as Fed Chief Powell preserved rate cut expectations after noting that crosscurrents, such as trade tensions and global growth worries have been weighing on economic activity and the outlook, while inflation pressures remain muted. He also reiterated that the Fed will “act as appropriate to sustain the expansion.”
Treasuries were lower, as the yield on the 2-year note was up 4 basis points (bps) to 1.86%, the yield on the 10-year note gained 7 bps to 2.13%, and the 30-year bond rose 8 bps to 2.65%.
©2019 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.
Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.