U.S. stocks rally as cooling CPI defuses rate fears

New York [US], July 15: U.S. stocks ended higher on Tuesday as a softer-than-expected inflation report rekindled hopes that monetary policy would stabilize.
The Dow Jones Industrial Average rose 0.02 percent to 52,508.27. The S&P 500 added 0.38 percent to 7,543.59. The Nasdaq Composite Index increased 0.9 percent to 26,107.01.
Six of the 11 primary S&P 500 sectors ended in the green, with technology and communication services leading the gainers by going up 1.25 percent and 1.13 percent, respectively. Health and consumer staples led the laggards, falling 1.91 percent and 1.38 percent, respectively.
The market's main catalyst was the June consumer price index (CPI) report, which showed U.S. annual inflation cooling to 3.5 percent. The reading landed comfortably below the 3.8 percent forecast by Wall Street economists, offering significant relief to investors concerned about persistent price pressures driven by recent energy shocks in the Middle East.
According to the CME Group's FedWatch Tool, the market-implied probability of an interest rate hike at the Federal Reserve's upcoming July meeting plummeted to 17 percent, from 42 percent the day prior.
"We recognise that the Fed has missed its inflation target for the past five years, and Kevin Warsh wants to put an end to this trend. Nonetheless, consumer inflation expectations are within tolerable ranges, suggesting little risk of second-round price effects from the energy spike," said James Knightley, chief international economist at ING.
In corporate news, IBM plummeted more than 25 percent on Tuesday after it reported preliminary second-quarter financial results that fell significantly short of Wall Street expectations. In a letter to investors, IBM Chairman and CEO Arvind Krishna attributed the shortfall primarily to weakness in the company's software and infrastructure businesses, acknowledging execution missteps during a volatile period.
Meanwhile, memory chip stocks rebounded, shaking off the prior-session sell-off. South Korean memory maker SK Hynix saw its ADRs surge 27.29 percent to close at 193.92 U.S. dollars. U.S. competitor Micron Technology and SanDisk both climbed around 5 percent on expectations of sustained infrastructure demand.
The financial sector also provided strong fundamental support as the second-quarter earnings season got underway. Major Wall Street banking institutions, including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs, all reported strong quarterly profits and trading volumes.
"Earnings should continue to drive the stock market higher," said Ed Yardeni and Toby Hearst of Yardeni Research. "Investors may be fretting that expectations for the upcoming earnings reporting season are so high that if they aren't exceeded, the market might swoon again in July as it did in June," Yardeni wrote.
Source: Qatar Tribune