Stocks closed mixed Friday as market participants weighed a hotter-than-expected reading on wholesale-price inflation. Although select pockets of strength offset some of the selling pressure, by the closing bell two of the three major indexes closed in the red.
Downbeat economic data dominated Friday’s session as market participants digested an unwelcome reading on inflation that came in the form of the Producer Price Index (PPI).
PPI, which measures wholesale prices, rose 0.3% in July, the Bureau of Labor Statistics said Friday. That was the highest reading since January and showed an acceleration in inflation vs the previous month when prices were flat. Economists were looking for PPI to rise just 0.2% in July.
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The core producer price index caused even more market trouble. Core PPI, which excludes volatile food, energy and trade services prices, is considered to be a better indicator of future inflation, and it also surprised to the upside. Core PPI rose 0.2% in July – or the largest gain since February – vs a 0.1% increase the previous month.
The disappointing PPI report, coming as it did just a day after an encouraging reading on consumer price inflation, served as an unwelcome reminder that the Federal Reserve’s fight against inflation is far from finished.
“The higher-than-expected PPI is not great news for the Fed as PPI tends to be a leading indicator for consumer inflation,” writes Giampiero Fuentes, an economist at Raymond James. “Today’s report continues to show signs that while inflation has been decelerating, the Fed’s journey to bring it to its 2% target is not over and it will take more months of positive data to convince the Fed that it is.”
On Thursday, the July Consumer Price Index (CPI) report showed that core inflation posted its smallest back-to-back monthly increase in two years.
Blue chip oil stocks bouncePricey tech stocks bore the brunt of Friday’s selling, sending the Nasdaq Composite down 0.7% to finish at 13,644. The broader S&P 500 fared a bit better but still closed down 0.1% at 4,464.
Happily, rising prices for crude oil made winners out of select blue-chip stocks in the energy sector. Forecasts for a supply deficit helped U.S. benchmark crude futures rise 32 cents to $83.09 a barrel. That, in turn, made winners out of oil & gas giants such as Exxon Mobil (XOM, +1.5%), ConocoPhillips (COP, +1.7%) and Chevron (CVX, +2.0%), a Buy-rated Dow Jones stock.
Indeed, CVX helped the Dow Jones Industrial Average escape the day with a gain, closing up 0.3% at 35,285.
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