Stock futures traded little changed Thursday evening as investors looked beyond a hotter-than-expected report on inflation.
Contracts on the S&P 500 hugged the flat line after the index set a new record high during the regular trading day. During the trading day, the health care, real estate and information technology sectors outperformed, while the cyclical financials and industrials sectors lagged. The 10-year yield erased earlier gains to come back below 1.5%.
The Bureau of Labor Statistics reported that its headline consumer price index rose by 5.0%, or the most since 2008, in May. Core consumer prices, which exclude volatile food and energy prices, surged at the fastest rate since the 1990s, extending gains after an already strong April report.
The market reaction to the report, however, was less negative than its response to the April report last month.
“The inflation outlook has rightfully been top of mind since last month’s blowout report,” LPL Financial Chief Market Strategist Ryan Detrick said in a note Thursday. “Under the hood, though, we think the picture is a bit more sanguine than the headlines would suggest, and still believe inflation will be relatively well-contained over the intermediate-to-long term.”
Investors have taken into account recent commentary from Federal Reserve officials, with many saying they saw price increases as only transitory jumps off last year’s pandemic-depressed lows. Next week’s Federal Reserve policy decision may help further reaffirm this stance, and solidify that the central bank still believes the economy has a ways to go in recovering from the pandemic before the Fed moves to adjust its pull back on its quantitative easing program or raise rates.
“I think that investors may have had some concern that if inflation was too hot that there would be fears of Fed tightening and a real significant tightening of financial conditions and that would weigh on equities,” Brian Levitt, Invesco global market strategist, told Yahoo Finance. “I would argue that it’s a market that’s saying, yea it’s inflationary, it’s not going to get out of hand. You may see some steps to normalize policy over time.”
“I think what we’ll find as the year progresses is that growth is strong, there is some pricing pressure, but the Fed’s going to let it run … and cyclically, rates should move higher from here. That’s not to say that rates are going to 2.5% or 3%,” he added. “We’re still going to be in a structurally low interest rate environment, probably for a lot of the rest of our careers if not the rest of our lives. But cyclically, I don’t see why rates shouldn’t move higher in an improving growth backdrop in which the Fed is telling us that they’re not going to be raising short rates for a while.”
7:52 p.m. ET Thursday: Stock futures trade near the flat line
Here’s where markets were trading Thursday evening:
S&P 500 futures (ES=F): 4,238.75, +0.75 points (+0.02%)
Dow futures (YM=F): 34,459.00, -2 points (-0.01%)
Nasdaq futures (NQ=F): 13,968.25, +8.5 points (+0.06%)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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