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US stocks close higher than expected amid more pessimistic inflation news

Financial Markets Wall Street
Posted at 4:35 PM, Jul 29, 2022

Stocks finished higher on Wall Street Friday as investors closed out the best month for the S&P 500 since November 2020.

New data showed inflation jumped by the most in four decades last month, but the sentiment was buoyed by positive earnings news out of technology giants Apple and Amazon, as well as oil giants Exxon and Chevron. The technology-heavy Nasdaq ended July with the biggest gains since April 2020. Stocks have gained momentum this month, fueled by better-than-expected corporate earnings and falling bond yields, which have pulled back after soaring much of this year on expectations of higher interest rates.

Stocks are adding to their recent gains in afternoon trading Friday, as Wall Street weighs a mix of company earnings reports and new data showing inflation jumped by the most in four decades last month.

The S&P 500 was up 1.3% as of 2:18 p.m. Eastern, while the Nasdaq was up 1.6%. Both indexes are on pace to end July with the biggest gains since November 2020. The Dow Jones Industrial Average was up 0.8%.

Positive earnings news from Apple and Amazon, as well as oil giants Exxon and Chevron, helped put traders in a buying mood.

Stock gains the month have been fueled by better-than-expected corporate earnings reports and falling bond yields, which have pulled back after soaring much of this year on expectations of higher interest rates.

Weak economic data, including a report Thursday showing that the U.S. economy contracted last quarter and could be in a recession, have also spurred stocks higher by giving some investors confidence that the Federal Reserve will be able to dial back its aggressive pace of rate hikes sooner than expected.

The central bank raised its key short-term interest rate by 0.75 percentage points on Wednesday, lifting it to the highest level since 2018. The Fed is raising rates in a bid to slow the U.S. economy and quell the highest inflation in 40 years.

An inflation gauge that is closely tracked by the Federal Reserve jumped 6.8% in June from a year ago, the biggest increase in four decades, leaving Americans with no relief from surging prices. On a month-to-month basis, inflation accelerated to 1% in June from May's 0.6% monthly increase, the Commerce Department said Friday.

The figures underscored the persistence of the inflation that is eroding Americans' purchasing power, dimming their confidence in the economy and threatening Democrats in Congress in the run-up to the November midterm elections.

Some market watchers advised against placing too much emphasis on the June data, however.

"This inflation metric is for June and we know much has changed since then, especially gas prices, so investors should put this inflation report into historical context," said Jeffrey Roach, chief economist for LPL Financial. "Looking ahead, July inflation rates will ease a bit from the previous month as food and energy costs should wane in July."

Still, inflation hit one company in its earnings on Friday: consumer staples giant Proctor & Gamble. Shares in the maker of Tide laundry detergent fell 5.3% after the company said consumers were cutting back, but the company's recent price increases were keeping profits up.

Other company earnings reports were more encouraging.

Exxon and Chevron posted record quarterly profits last quarter amid high oil and gas prices. The two companies made $46 billion last quarter and roughly four times the amount of money those two companies made in the same period a year earlier. Chevron shares jumped 8.5% to a six-week high, while Exxon rose 4.4%.

Amazon surged 12.1% after the company posted a quarterly loss, but its revenue jumped sharply in the quarter.

Apple was up 3.4% after its quarterly earnings came in better than Wall Street expected. The iPhone maker saw its profit for the April-June period decline by 10% while revenue edged up 2% as it grappled with manufacturing headaches and inflation pressures.

In the bond market, yields were mixed. The two-year Treasury yield, which tends to move with expectations for the Fed, rose to 2.89% from 2.87% late Thursday. The 10-year yield, which influences mortgage rates, fell to 2.64% from 2.67%.