The Nasdaq and the S&P 500 recorded their fourth consecutive record closing highs on Thursday and U.S. Treasury yields touched their lowest levels since early April as investors reconciled cooler-than-expected inflation data with tempered rate-cut expectations from the Federal Reserve.
The dollar gained ground against a basket of world currencies as the Fed’s hawkishness and possibility of a Europe-China tariff war sent European stocks sharply lower.
The blue-chip Dow was modestly lower at the closing bell.
The Labor Department’s data showed producer prices came in significantly lower than analysts had expected, dipping 0.2% in May on a monthly basis, while rising 2.2% year-on-year, or 20 basis points above the Fed’s 2% annual inflation target.
In another report, initial jobless claims touched a 10-month high.
The data followed Wednesday’s cooler-than-expected CPI report and the Fed’s revised dot plot, which lowered rate-cut expectations this year from three to one.
“After solid gains, markets are kind of taking a pause after the big news day yesterday and that’s not a bad thing,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. “We call this the calm after the storm – we’re consolidating some of the really big gains we’ve seen in the first half of June.
Despite the Fed’s hawkish dot plot revision, expectations that the U.S. central bank could implement its first rate cut as soon as September are on the rise.
Financial markets now see a 60.5% likelihood of a 25-basis-point reduction to the Fed funds target rate in September, according to CME’s FedWatch tool.
