US stocks rise as AI trade continues, while Cisco's earnings disappoint, and inflation data impacts Fed rate hike expectations.
The US stock market began Thursday on a positive note, largely driven by the ongoing artificial intelligence (AI) trade, which has seen significant gains in recent days. Despite this, Cisco's earnings report may lead to a temporary cooldown, as the company's shares fell over 6% after initially reaching an all-time high. This mixed performance highlights the complexities of the current market landscape.
Key players in the AI sector have seen substantial gains, with some stocks experiencing much larger moves than the broader market. The S&P 500 closed at 7,748.50, up 0.26%, while the Nasdaq gained 0.54% to 26,588.49. Meanwhile, the Dow slipped 0.04%, demonstrating that not all stocks are rising equally, with AI-related companies doing most of the heavy lifting.
The recent inflation data has played a significant role in shaping market expectations. July's Consumer Price Index (CPI) increased only 0.1% from the previous month, with annual inflation slowing to 3.4% from 3.5%. This has led to a decrease in the expected probability of a September Federal Reserve rate hike, from 54% to 40%. Lower interest rates can support technology and growth stocks, which are often valued based on future profits.
The next significant event to watch is the release of the US Producer Price Index (PPI), which measures changes in prices received by producers. A higher PPI can indicate increased costs for companies, potentially leading to elevated inflation. The 10-year US Treasury yield, a crucial interest rate in global markets, currently stands at around 4.68%, slightly down from Wednesday. When yields rise, stocks can come under pressure, while falling yields often provide a boost to growth stocks.
The current market landscape is also influenced by the US Dollar Index, which is near 99.96, and the USD/JPY exchange rate, around 159.33. Gold has pulled back slightly, following a strong move, with spot gold near $4,384 per ounce. The price of gold is still up over 8% in August, partly due to decreased expectations for additional Fed rate hikes, making gold more attractive. Oil prices, on the other hand, are under pressure, with Brent crude near $87.95 and WTI around $82.19, due to weakened global demand expectations and increased US crude inventories.
The unresolved US-Iran dispute around the Strait of Hormuz and the ongoing war around the Black Sea are critical factors to watch, as they can significantly impact oil and grain prices. Higher oil prices can lead to increased transportation, manufacturing, and energy costs across the economy, potentially causing inflation to rise. This, in turn, could lead to higher Treasury yields and more hawkish Fed expectations, ultimately affecting stocks. The situation in Ukraine, with its disrupted grain-export hub and reduced exports, is also crucial, as high grain prices can eventually influence everyday products.
Traders should continue to monitor these developments, as the complex interplay between inflation, interest rates, and global events can significantly impact the market. The AI trade, while strong, is not immune to these factors, and the disappointing Cisco earnings report serves as a reminder that even positive news can be met with skepticism. As the market navigates these challenges, it is essential to remain informed and adapt to changing circumstances.
Source: InvestingLive. Summarized and rewritten by the Vexoda Newsroom. This is market news, not financial advice.