The S&P 500 Index closed up 0.38% on Wednesday, reaching a six-week high, as softer-than-expected US producer price data and dovish Fed comments outweighed a sharp selloff in semiconductor stocks. The Dow Jones Industrial Average rose 0.29%, while the Nasdaq 100 fell 0.28%, dragged down by chipmakers and health insurers.
Inflation Data and Fed Commentary Boost Sentiment
US June producer prices rose 5.5% year-over-year, below the 6.2% forecast, while core PPI (excluding food and energy) increased 4.7%, also missing expectations of 5.1%. The data reinforced hopes that inflation has peaked, supporting a dovish tilt from the Federal Reserve. New York Fed President John Williams said there are "encouraging reasons to expect that inflation has peaked and should edge down in coming quarters," which helped push Treasury yields lower. The 10-year note yield fell 4.8 basis points to 4.541%.
Tech Strength Lifts Broader Market, but Chip Rout Weighs on Nasdaq
Apple surged more than 4% after China approved the rollout of its generative AI feature, Apple Intelligence, leading the Magnificent Seven higher. Alphabet, Amazon, and Meta each gained over 3%, while Microsoft rose more than 2% and Nvidia added 0.33%. However, the iShares Semiconductor ETF (SOXX) dropped more than 2%, with Western Digital falling over 8%, Sandisk and Micron down more than 6%, and Marvell Technology losing over 7%. The chip rout was partly attributed to profit-taking after strong earnings from ASML, which highlighted relentless AI-driven demand for semiconductors.
Health Insurance and Mortgage Data
Health insurance stocks came under pressure after Elevance Health plunged on guidance that missed expectations despite a second-quarter beat. US mortgage applications fell 2.7% in the week ended July 10, with purchase mortgages down 7.3% and refinancing up 3.5%. The average 30-year fixed-rate mortgage rose 7 basis points to 6.65%.
Geopolitical Risks and Global Data
Geopolitical tensions escalated as the US-Iran interim peace deal collapsed, with the US launching a fifth straight day of airstrikes on Iran and maintaining a naval blockade of the Strait of Hormuz. President Trump vowed to intensify bombardment until Iran stops attacking ships in the waterway; Iran retaliated with missile and drone attacks on Kuwait. Meanwhile, Chinese economic data was mixed: Q2 GDP grew 4.3% year-over-year, slightly below expectations, but industrial production rose 5.3% (above 4.6% forecast) and retail sales unexpectedly increased 1.0% versus a predicted 0.1% decline. The surveyed jobless rate fell to 5.0%.
Earnings Outlook and Market Pricing
Q2 earnings season is expected to show a 23% year-over-year increase, according to Bloomberg Intelligence, close to Q1's 30% blowout. AI infrastructure stocks are projected to contribute nearly 60% of S&P 500 earnings-per-share growth. Markets are pricing only a 10% chance of a 25-basis-point rate hike at the July 28-29 FOMC meeting.
Bond and Overseas Markets
September 10-year T-notes rose 12 ticks, recovering from early losses as oil prices climbed. European bond yields were mixed, with the German bund yield hitting a 1.75-month high of 3.148% and the UK gilt yield falling 4 basis points. Overseas stocks were mixed: the Euro Stoxx 50 fell 0.23%, China's Shanghai Composite dropped 0.29%, and Japan's Nikkei 225 gained 1.49%.