Wall Street stocks have gained ground as softening inflation data and a robust beginning of second-quarter earnings season put investors in a buying mood.
All three major stock indexes closed modestly higher despite weakness in semiconductors, with consumer-focused retail and travel/leisure clear outperformers.
Banks boost reporting season
A second day of solid bank earnings added momentum to an auspicious beginning to second-quarter reporting season.
BlackRock and Morgan Stanley both beat quarterly profit expectations.
BlackRock shares advanced 6.6%, while Morgan Stanley ended the session up 0.4%.
“Everything looks great with the bank earnings,” said Mike Dickson, head of portfolio management at Horizon Investments in Charlotte, North Carolina.
“I would not be at all surprised to see another bang-out quarter.”
Analysts currently expect second-quarter S&P 500 earnings growth of 23.7% compared with the same time last year, according to the most recent data from LSEG.
The Dow Jones Industrial Average rose 150.91 points, or 0.29%, to 52,659.18. The S&P 500 gained 28.83 points, or 0.38%, to 7,572.42. The Nasdaq Composite gained 162.22 points, or 0.62%, to 26,269.23.
Among the 11 major sectors in the S&P 500, communication services advanced the most while utility stocks suffered the largest percentage drop.
Cooler inflation eases pressure on the Fed
The Labor Department's Producer Price Index (PPI) report provided a second straight day of cooler-than-expected inflation data, even as newly confirmed US Federal Reserve chair Kevin Warsh appeared before the Senate Banking Committee in his second day of Congressional testimony.
Combined with Tuesday's CPI report, the PPI data suggests that inflation took a step in the right direction last month even though it remains elevated due to the US-Israeli war on Iran.
This eased near-term pressure on the central bank to raise its key interest rate.
“My fear going into this week was, we could get a hot CPI print, inflation above 3.8 per cent, and we didn't get it; we got a cooler reading of 3.5 per cent,” said Lauren Cassidy, chief investment officer of Founders 100 ETF, in Dallas.
“So that allows the Federal Reserve to have the opportunity to keep rates flat or cut them later this year, which is good news for the market.”
Financial markets are currently pricing in a 10.2% likelihood that the Fed will implement a quarter-percentage-point rate hike at the conclusion of this month's monetary policy meeting, down from 31.0% a week ago, according to CME's FedWatch tool.
Middle East tensions back in focus
Even so, this week's inflation data was focused on last month, when investors were growing optimistic that negotiators were moving toward a peaceful resolution to the Middle East conflict.
That optimism has faded in recent days as the US and Iran staged escalating airstrikes, vying for control over the Strait of Hormuz.
That could result in renewed price pressures.
Fed governor Lisa Cook said she is “prepared to act” if inflation does not soon begin to slow.
Advancers outnumber decliners
Advancing issues outnumbered decliners by a 1.5-to-1 ratio on the NYSE. There were 269 new highs and 124 new lows on the NYSE.
On the Nasdaq, 2,647 stocks rose and 2,107 fell as advancing issues outnumbered decliners by a 1.26-to-1 ratio.
Volume on US exchanges was 16.27 billion shares, compared with the 21.40 billion average for the full session over the last 20 trading days.
