US Stock Market Overview – Stocks Trade Mixed, Strong CPI Lifts Yields

Powells says the relationship between labor and inflation is broken
David Becker

The Dow Jones Industrial Average rallied above 27,000 on Thursday, as dovish sentiment surrounding the Federal Reserve continued to buoy stock prices. The rally continued despite a larger than expected increase in US consumer prices which helped buoy the US dollar. Yields edged higher on Thursday, but crude oil edged lower despite Tropical Storm Barry forming in the Gulf of Mexico. The Dow was driven higher by strong gains in United Healthcare.

In the S&P 500 index, sectors were mixed. Financials were the best performer while consumer staples were the worst. Healthcare was mixed within that sector and there were a mixed bag of performance. While Cigna was the best performer up more than 9%, Merck was the worst performer down more than 5%.

Core Inflation Rises to 1.5-year High

US core consumer prices increased to an 18-month high in June. According to the Labor Department CPI excluding the volatile food and energy components rose 0.3% last month. That as the largest increase since January 2018 and followed four straight monthly gains of 0.1%. The so-called core CPI was boosted by strong increases in the prices for apparel, used cars and trucks, as well as household furnishings. There were also increases in the cost of healthcare and rents. In the 12 months through June, the core CPI climbed 2.1% after advancing 2.0% in May. The headline consumer price index CPI edged up 0.1% last month, held back by cheaper gasoline and food prices. Expectations were for CPI to remain unchanged in June and rising 1.6% year-on-year. The CPI rose 0.1% in May. It increased 1.6% year-on-year in June after rising 1.8% in May.

The Fed Says Wage Inflation and Consumer Prices Do Not Run in Tandem

During his testimony in front of the senate banking committee on Thursday Fed Chair Gerome Powell said that the relationship between the slack in the economy or unemployment and inflation was a strong one 50 years ago, but it has gone away. He added the strong tie between unemployment and inflation was broken at least 20 years ago and the relationship has become weaker and weaker and weaker.

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