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Wall Street Fizzles After Initial Gain

Wall Street experienced an initial surge due to July's milder-than-expected inflation data, only to flatten out as concerns about the U.S. economy's long-term prospects took over. Here's an in-depth look at the factors that influenced the market's reaction.

New York Stock Exchange
New York Stock Exchange

The Initial Optimism

Wall Street's main indexes gave up early gains to trade mostly flat on Thursday, as initial optimism over milder-than-feared inflation data gave way to longer-term concerns about the state of the U.S. economy and whether stocks had much room to run.

July's Inflation Data Unpacked

Data showed headline and core consumer prices both climbed by 0.2% in July, with the headline number notching an annual rise of 3.2% and core up 4.7%.

Reaction from the Trading Floor

In the first hour of trading, the three benchmark indexes advanced more than 1% as traders bet the U.S. Federal Reserve would stop further monetary tightening in 2023 and start cutting interest rates early next year. Stock prices started to sag from late morning onwards.

Expert Opinions on Market Reaction

Yung-Yu Ma, chief investment officer at BMO Wealth Management, explained that the market's reaction was in line with expectations, with medium-term risks remaining a concern. San Francisco Fed President Mary Daly also expressed the need for further progress in inflation control.

In separate data, the number of Americans filing new claims for unemployment benefits rose by 248,000 last week, exceeding estimates of 230,000. August also saw a traditional lull in market volumes, with big technology stocks driving previous advances.

Performance of Major Stocks and Bonds

Further rises in mega caps have been limited as the yield on the benchmark 10-year U.S. Treasury note rose above 4%. Amazon, Microsoft, and Apple were trading flat or marginally down, with significant changes in Dow Jones, S&P 500, and Nasdaq Composite.

Sector Overview

The majority of S&P sectors were in negative territory, with industrials and real estate among those declining.

Earnings and Market Moves

On the earnings front, Disney rose after beating estimates, Capri surged following a buyout deal, and Alibaba's U.S.-listed shares jumped due to upbeat quarterly sales.

U.S.-China Trade Concerns

Heightening trade worries, President Joe Biden signed an executive order prohibiting some new U.S. investment in China in sensitive technologies, adding further complexity to the ongoing trade relations between the two nations.