Wall Street ends flat, gives up most gains after July inflation data

By David French

(Reuters) – Wall Street’s main indexes closed flat on Thursday, giving up most early gains on milder-than-feared inflation data as investors worried about the U.S. economy’s longer-term prospects and whether stocks had further room to run.

Data showed headline and core consumer prices both climbed by 0.2% in July, with the headline number notching annual rise of 3.2% and the core up 4.7%.

In the first hour of trading, the three benchmark indexes advanced more than 1% as traders bet the U.S. Federal Reserve would stop further monetary tightening in 2023 and start cutting interest rates early next year.

Stock prices started to sag from late-morning onwards, and bounced between positive and negative territory for much of the afternoon.

“People looked at the headline number first and we had the big upswing, but as the day went on, the rally faded and that was probably the right reaction,” said Gregg Abella, CEO of Investment Partners Asset Management.

He noted that while inflation has slowed, a look beyond the headline number revealed that core inflation remained sticky, and as traders parsed the data, the initial positive sentiment became more subdued.

San Francisco Fed President Mary Daly voiced that cautious tone, saying that while recent inflation data was moving in the right direction, more progress was needed before she would feel comfortable the central bank had done enough.

In separate data, the number of Americans filing new claims for unemployment benefits rose by 248,000 last week, exceeding estimates of 230,000.

August is also the traditional lull in market volumes with many investors enjoying summer vacations. Any stock price gains offer an opportunity for profit-taking, after five months of advances on the and driven by strong growth in big technology stocks.

“A lot of tech valuations are predicated on rates falling, but there is nothing in the numbers, in my mind, to say that we’re cutting rates – in fact, we may even see another quarter-point increase before the end of the year,” said Abella, noting some big tech valuations were already lofty.

Further rises in these megacaps have also been limited as the yield on the benchmark 10-year U.S. Treasury note has risen again to above 4%.

Amazon.com (NASDAQ:), Nvidia (NASDAQ:) Corp, Microsoft (NASDAQ:) and Apple (NASDAQ:) all closed with modest gains or losses.

According to preliminary data, the S&P 500 gained 1.34 points, or 0.03%, to end at 4,469.05 points, while the Nasdaq Composite gained 16.39 points, or 0.12%, to 13,739.06. The Dow Jones Industrial Average rose 50.28 points, or 0.15%, to 35,173.64.

Among S&P sectors in negative territory were industrials and real estate.

On the earnings front, Walt Disney (NYSE:) rose after beating Wall Street estimates for quarterly adjusted profit per share.

Capri surged after larger rival Tapestry (NYSE:) said it would buy the Michael Kors parent in an $8.5 billion deal. Tapestry’s shares fell.

U.S.-listed shares of Alibaba (NYSE:) jumped after the e-commerce conglomerate reported upbeat quarterly sales on the back of improved consumer sentiment.

Heightening trade worries, President Joe Biden on Wednesday signed an executive order that prohibits some new U.S. investment in China in sensitive technologies such as computer chips and requires government notification for investment in other tech sectors.