The S&P 500 was trading at its highest level in more than three months on Thursday, extending a rally from the previous session as fresh evidence of cooling inflation further cemented hopes of a smaller rise in interest rates.
The benchmark index rose after data showed US producer prices unexpectedly fell in July, bolstering the chance of a 50-basis point hike by the Federal Reserve in September instead of 75 basis points.
Meanwhile, the number of Americans filing new claims for unemployment benefits rose for the second straight week, indicating further softening in the labor market despite tight conditions.
The indices had sharply rallied on Wednesday following a softer-than-expected rise in consumer prices. The gains came even as policymakers left no doubt they will tighten monetary policy until price pressures are fully broken.
“These economic numbers don’t deviate too much from the expectation that the economy continues to do okay and perhaps inflation is at least a bit under control,” said Ted Weisberg, the founder and president of Seaport Securities.
“The markets are anxious to get some good news after what has been horrible first six months of the year.” Traders are now pricing in a more than 63.5 per cent chance that the Fed will hike interest rate by 50 basis points.
Eight of the 11 major S&P 500 indexes advanced, with financials and industrials adding nearly 1 per cent each, while energy stocks tracked gains in crude prices.
Boosting the blue-chip Dow and the S&P 500, banks extended their rally by 1.2 per cent with Goldman Sachs and JPMorgan Chase & Co up 1.3 per cent and 0.8 per cent, respectively.
At 12:25 p.m. ET, the Dow Jones Industrial Average was up 155.20 points, or 0.47 per cent, at 33,464.71, the S&P 500 was up 14.82 points, or 0.35 per cent, at 4,225.06, and the Nasdaq Composite was down 5.68 points, or 0.04 per cent, at 12,849.13.
The tech-heavy Nasdaq lagged its peers as many megacap growth and technology stocks reversed early gains as US Treasury yields pared losses.
“Some traders are looking to start taking some profits but clearly the short-term direction is higher, not lower pending additional macro data,” said Michael James, managing director of institutional equity trading at Wedbush Securities.
High-growth stocks that had rallied in the previous session and whose valuations are vulnerable to rising bond yields, such as Tesla Inc and Amazon.com Inc, fell nearly 1 per cent each as the benchmark 10-year yield rose to 2.83 per cent.
Despite its recent bounce of mid-June lows, the tech-heavy Nasdaq is down 17.8 per cent so far this year as fears of an aggressive monetary policy sapped appetite for equities, particularly high-growth stocks.
The US central bank has raised its policy rate by 225 basis points since March as it battles to cool demand without sparking a sharp rise in layoffs.