Stock Futures Hushed After Lower-Than-Expected Inflation Sends Nasdaq Into Bull Territory

After the newest inflation numbers, bullish traders hope the Fed won’t have to raise rates as aggressively as previously feared.


Courtesy NYSE

U.S. stock futures were mixed Wednesday evening after July’s consumer price index showed that inflation eased last month, propelling the tech-heavy Nasdaq Composite into bull-market territory earlier in the day.

Prices for all items rose 8.5% compared with a year ago, a notch below the consensus expectation for 8.7% and more than half a percentage point lower than June’s 9.1% reading. Stocks started the morning higher and maintained their momentum throughout the session, as the S&P 500, the Dow Jones Industrial Average, and the Nasdaq finished up 2.1%, 1.6%, and 2.9%, respectively.

On a good day for growth stocks, the Nasdaq’s bump lifted the index into bull-market territory, which is defined as 20% above a recent low. The index ended the trading day about 20.8% above its 2022 closing low on June 16 and exited its longest bear market since 2008; however, the Nasdaq is still about 20% off its all-time high from last November. And inflation remains elevated, hovering around a 40-year high even as lower fuel prices last month moved it in the right direction—toward the Federal Reserve’s 2% target price level.

The resoundingly strong sentiment didn’t quite continue into Wednesday evening, even as investors reacted positively to



Disney
’s

(ticker:



DIS

) latest quarterly earnings and $21.5 billion in revenue, which both beat expectations.

At 6:30 p.m. Eastern time, futures for the S&P 500 and Nasdaq were down 0.05% and 0.13%, respectively, while futures for the Dow were up 0.04%.

In Wednesday’s better-than-expected inflation figures, bullish investors saw the possibility that the Federal Reserve may not need to increase its target federal-funds rate as aggressively as it would have if July inflation remained near June’s level.

“The lower-than-expected inflation report was the last near-term hurdle for equity bulls—and the worst fear for shorts,” Wells Fargo analysts Christopher Harvey, Gary Liebowitz and Anna Han wrote in a research note.

The probability of a more moderate 0.5-point increase to the Fed’s target interest rate in September, as assessed by the CME FedWatch Tool, nearly doubled Wednesday, increasing to 58% from 32% the day prior. Meanwhile, the chance of another larger 0.75-point rate increase fell. August’s CPI will come out before the Federal Open Market Committee makes its next rate decision in late September.



Disney
,

trading at almost twice the volume of the next most active single ticker, was the largest gainer in after-hours trading Wednesday evening. Shares in the media and entertainment icon rose 6.8% as the company paired strong earnings results with the announcement that its streaming service,



Disney

+, ended the quarter with a better-than-expected 152.1 million subscribers. Disney plans to raise the price of that subscription in December while also introducing a lower-priced, ad-supported alternative. 

Other stocks on the rise included



Skillz

(



SKLZ

), up 6.8%;



Textron

(



TXT

), up 4.5%; and



Copart

(



CPRT

), which rose 2.4%.



Sonos

(



SONO

) stock sank 18% as the wireless sound-system manufacturer cut its outlook and reported quarterly sales of about $372 million, down 1.8% from a year ago.



Expeditors International

(



EXPD

), down 3.7%;



Sealed Air

(



SEE

), down 3%;



Healthpeak Properties

(



PEAK

), down 2.7%; and



NRG Energy

(



NRG

), which fell 2.6%, were among the after-hours laggards in the S&P 500.

The producer price index, the CPI’s less popular cousin focusing on suppliers’ price changes, comes out Thursday morning at 8:30 a.m. Producer prices are expected to have increased again in July but not as fast as they did in June, according to the consensus estimate on FactSe. It lists 10.4% as the expected year-over-year increase and 0.3% as July’s anticipated monthly increase.



Brookfield Asset Management

(



BAM

),



Cardinal Health

(



CAH

),



Aercap

(



AER

),



US Foods

(



USFD

),



Six Flags

(



SIX

),



Warby Parker

(



WRBY

), and



Utz Brands

(



UTZ

), among others, report their latest quarterly results before the market opens Thursday.

Write to editors@barrons.com

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