Stocks closed at three-month highs on Wall Street Wednesday as investors cheered a report showing inflation cooled more than expected in July. The S&P 500 jumped 2.1% to 4,210.24 Wednesday on expectations that slower inflation will mean the Federal Reserve won’t hike interest rates as much as feared. The Dow Jones Industrial Average rose 535.10 points, or 1.63%, to 33,309.51, and the Nasdaq jumped 360.88 points, or 2.89%, to 12,854.81. Technology stocks, cryptocurrencies, and other investments among the year’s biggest losers due to the Fed’s aggressive rate hikes led the way, the AP reports. Treasury yields pulled back sharply following the inflation data.
Much of July’s slowdown in inflation was due to lower prices for gasoline and oil. But even after ignoring that and volatile food prices, so-called "core inflation" held steady last month instead of accelerating as economists had forecast. The data encouraged traders to scale back bets for how much the Fed will raise interest rates at its next meeting. They now see a hike of a half percentage point as the most likely outcome, according to CME Group. A day earlier, they were betting on a more aggressive hike of 0.75 percentage points, the same as the last two increases.
"This is a step in the right direction but keep in mind we have many miles ahead of us before inflation normalizes, " said Mike Loewengart, managing director at E-Trade from Morgan Stanley. Companies in the housing industry were strong on hopes that a less aggressive Fed could mean less pressure on mortgage rates. Homebuilder DR Horton gained 4.7%, PulteGroup rose 4.6% and Lennar was 3.6% higher. Cruise lines and other travel-related companies also made big gains. Carnival rose 6.9% and American Airlines rose 3.1%.
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