Wall Street steady after inflation data, IBM plunges, ASX set to rise
Stan Choe
Stocks have been holding steady following a report showing U.S. inflation wasn’t as bad as economists expected last month. This was despite oil prices continuing to rise due to concerns that the United States and Iran could return to all-out war.
The S&P 500 rose 0.4 percent to offset some of its 0.8 percent loss from the previous day. In afternoon trading, the Dow Jones Industrial Average was down 56 points, or 0.1 percent, and the Nasdaq composite was up 1.1 percent. The Australian share market is poised to rise, with futures pointing to a 49-point, or 0.6 per cent, rise at the open at 5am (AEST). The ASX closed flat on Tuesday. The Australian dollar was stronger at 69.74¢.
U.S. stocks got a boost from lower yields in the bond market, which fell after a report said U.S. consumers had to pay 3.5 percent higher prices for gasoline, food and other living expenses last month than a year earlier.
While that was more than almost anyone would have wanted, it was not as bad as the 4.2 percent inflation rate in May or the 3.9 percent inflation rate economists expected for June. Less bad inflation could ease pressure on the Federal Reserve, which is considering raising interest rates.
Higher rates may limit inflation, but they also slow the economy and hurt the prices of all kinds of investments.
Following the inflation report, investors see a less than 13 percent chance that the Fed will raise its key interest rate at its next meeting later this month. That’s lower than the almost 42 percent probability they saw a day ago, according to data from CME Group.
Recoveries in large, influential technology stocks also helped stabilize the market. They have been swinging sharply in recent weeks amid concerns that they have driven enthusiasm for AI technology too high and that the insatiable demand for AI chips and data centers could wane if they fail to deliver promised profits and productivity.
Micron Technology increased by 4.8 percent and Nvidia increased by 3.7 percent. A day earlier, they were among the two heaviest indices of the S&P 500, falling 4.4 percent and 3.5 percent, respectively.
Of course, major risks remain in terms of inflation. Conflicts in the Middle East threaten to block or slow down traffic in the Strait of Hormuz, the narrow waterway used by oil tankers to exit the Persian Gulf and deliver crude oil to customers around the world.
The barrel price of Brent crude oil, the international standard, briefly rose above $87 in the morning. After a nearly 10 percent jump on Monday, the situation is back to where it was before the United States and Iran signed an interim agreement to halt hostilities in the middle of last month.
The Brent price later pared its gains and rose 1.4 percent to $84.48 from Monday’s close. President Donald Trump backed down from his threat the day before to charge a 20 percent fee for all cargo passing through the strait and to pay compensation for the protection of the US military.
Wall Street’s other big focus this week is the start of earnings reporting season, when companies tell investors how much profit they made from April through June. There is pressure on companies to deliver massive growth to justify how high their stock prices are rising. Indexes are near records despite recent volatility caused by concerns about AI stocks.
Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs and Wells Fargo on Tuesday reported higher profits than analysts expected in their latest quarter. Their reports showed trading desks were strong and suggested spending by U.S. consumers remained resilient.
Stocks mostly rose following the results. Goldman Sachs rose 7.7 percent but Citigroup fell 5.6 percent.
IBM was the underweight index in the S&P 500 and the biggest reason the Dow lagged other indexes after falling 24.5 percent. It’s potentially heading for its worst day since at least 1972, according to data provider FactSet.
The performance of IBM’s software and infrastructure businesses fell short of expectations last quarter after customers shifted spending to servers, storage and memory to head off expected price increases driven by the AI boom, CEO Arvind Krishna said.
“These conditions require our teams to perform with excellence, and we floundered this quarter,” Krishna said in a letter to investors. “We were unable to adapt and move quickly enough, and many large deals were not completed within the timelines we expected, creating a large portion of our shortfall.”
In the bond market, the yield on the 10-year Treasury note fell from 4.62 percent to 4.58 percent at the end of Monday. This is a significant move and halts the 3.97 percent rise before the war with Iran began.
Fed Chairman Kevin Warsh testified before lawmakers on Capitol Hill for the first time since taking over leadership of the central bank. He promised that high inflation was “a thing of the past” but gave no signal about the Fed’s next steps.
Indices in foreign stock markets started to rise in Europe after the strong closing in Asia.
Japan’s Nikkei 225 Index gained 0.7 percent after SoftBank Group Corp. gained 3.3 percent. President Masayoshi Son, a major investor in AI, gave a speech in Tokyo where he mocked the idea that there was a bubble in investment in AI capacity.
Stocks rose 1.4 percent in Shanghai after the government reported China’s exports rose 27 percent in June from a year earlier as artificial intelligence fueled strong demand for computer chips and other technologies.
