U.S. stocks open at fresh 15-month highs as inflation data spurs soft-landing hopes

What’s driving markets

U.S. stocks opened higher on Thursday as the S&P 500 index and Nasdaq Composite traded at their highest levels since early April 2022.

The latest batch of U.S. economic data suggested the Federal Reserve has managed to bring down inflation without provoking a surge in unemployment and the economic downturn that many had feared.

After equity bulls were energized by Wednesday’s news that U.S. consumer inflation has fallen to its lowest level in more than two years, Thursday’s data showed wholesale prices rose a meek 0.1% in May. Meanwhile, a weekly accounting of the number of Americans applying for jobless benefits declined by 12,000 to 237,000.

The data have helped all three main U.S. equity indexes reverse their losses from last week.

Additionally, some early corporate earnings reports from Pepsi Co.
PEP,
+0.62%
and Delta Air Lines Inc.
DAL,
-0.54%
showed the American consumer is continuing to spend on goods and travel, contributing to the market’s sunny mood.

See: PepsiCo’s stock gains after beating estimates in latest quarter and raising guidance again

Borrowing costs also dipped further, with the benchmark 10-year Treasury yield
TMUBMUSD10Y,
3.814%,
which started the week near 4.1%, now at 3.83%. Bond yields move inversely to prices.

The ICE U.S. dollar index
DXY,
-0.43%,
a gauge of the currency’s value against its main rivals, also declined, slumping to its lowest level in more than a year Thursday, adding another tailwind to the stock-market rally.

Bokeh Capital Partners CIO Kim Forrest said both inflation and employment data may be finally responding to the Fed’s interest-rate hikes and quantitative tightening, bolstering expectations that the Fed might achieve its policy goals without provoking a surge in unemployment or a punishing recession.

“It seems like things are moving in the right direction,” she said during an interview with MarketWatch.

Mohamed El-Erian, adviser to Gramercy and Allianz, agreed that easing inflation is making investors more optimistic about U.S. growth as he noted in a tweet that expectations are moving toward a soft landing.

Even outside the U.S., there was a broad ‘risk on’ tone across global markets. For example, the Hang Seng
HSI,
+2.60%
in Hong Kong, whose currency peg with the U.S. dollar makes it particularly sensitive to Fed policy, rose 2.5% on Wednesday, despite news that Greater China exports fell in June by their most since the start of the COVID pandemic.

Extending the rally now likely depends on how the second-quarter corporate earnings season is received. Investors are already looking ahead to Friday when big banks such as JPMorgan Chase
JPM,
+0.66%,
Citigroup
C,
+0.75%
and Wells Fargo
WFC,
+0.84%
will present their quarterly earnings figures.

Overall S&P 500 earnings are expected to fall by 6.4%, according to Refinitiv, though much of this is because of large losses for energy companies.

Companies in focus

• The Walt Disney Co.‘s
  DIS,
  +0.06%
  stock rose after the company’s board extended Chief Executive Bob Iger’s contract for two more years through December 2026.

• Delta Air Lines Inc.
  DAL,
  -0.54%
  rose toward a more-than two-year high after the air carrier reported record second-quarter profitability and sales and boosted its full-year outlook, citing continued “robust” travel demand.

• PepsiCo Inc.’s
  PEP,
  +0.62%
  rose after the drinks and snacks giants topped estimates for the second quarter and raised its guidance for a second straight quarter.

• Conagra Brands Inc.
  CAG,
  -0.18%
  slid toward a nine-month low after the branded foods company’s fiscal fourth-quarter revenue fell short of forecasts and the full-year outlook was downbeat.