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Tamer-Than-Expected Inflation Data Leads To New Record Highs On Wall Street

With traders reacting positively to closely watched consumer price inflation data, stocks moved sharply higher during trading on Wednesday. The major averages added to Tuesday’s gains, setting new record closing highs.

The major averages saw further upside late in the session, reaching new highs for the day. The tech-heavy Nasdaq surged 231.21 points or 1.4 percent to 16,742.39, the S&P 500 shot up 61.47 points or 1.2 percent to 5,308.15 and the Dow jumped 349.89 points or 0.9 percent to 39,908.00.

The rally on Wall Street came following the release of a Labor Department report showing consumer prices in the U.S. rose by slightly less than expected in the month of April.

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The Labor Department said its consumer price index increased by 0.3 percent in April after rising by 0.4 percent in March. Economists had expected consumer prices to climb by another 0.4 percent.

Excluding food and energy prices, core consumer prices still rose by 0.3 percent in April after climbing by 0.4 percent in March. The increase in core prices matched economist estimates.

The report also said the annual rate of consumer price growth slowed to 3.4 percent in April from 3.5 percent in March, in line with expectations.

The annual rate of core consumer price growth decelerated to 3.6 percent in April from 3.8 percent in March. The slowdown also matched estimates.

Following yesterday’s hotter-than-expected producer price inflation data, the report added to recently renewed optimism about the outlook for interest rates.

“The CPI print offered a modicum of hope that inflation is cooling, albeit slowly,” said Quincy Krosby, Chief Global Strategist for LPL Financial.

She added, “The Fed will certainly need a series of cooler reports for adjusting its rate easing timetable, but the CPI report suggests that the path towards 2% is a bit less bumpy.”

Meanwhile, the Commerce Department released a separate report showing retail sales in the U.S. unexpectedly came in flat in the month of April.

The Commerce Department said retail sales were virtually unchanged in April after climbing by a downwardly revised 0.6 percent in March.

Economists had expected retail sales to rise by 0.4 percent compared to the 0.7 percent increase originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales edged up by 0.2 percent in April after jumping by 0.9 percent in March. The uptick matched economist estimates.

Sector News

Computer hardware stocks saw substantial strength on the day, driving the NYSE Arca Computer Hardware Index up by 4.1 percent to a record closing high.

Shares of Dell (DELL) soared after Morgan Stanley raised its price target on the computer maker’s stock to $152 from $128, calling it the “best way to play” the AI infrastructure build-out.

Significant strength was also visible among housing stocks, as reflected by the 3.4 percent surge by the Philadelphia Housing Sector Index.

The index reached its best closing level in over a month even though a report from the National Association of Home Builders showed an unexpected slump by homebuilder confidence in May.

Semiconductor stocks also moved sharply higher over the course of the session, with the Philadelphia Semiconductor Index jumping by 2.9 percent to a two-month closing high.

Software, brokerage and commercial real estate stocks also saw considerable strength, while airline stocks were among the few groups that bucked the uptrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region once again ended mixed on Wednesday, with markets in Hong Kong and South Korea closed for holidays.

Japan’s Nikkei 225 Index inched up by 0.1 percent and Australia’s S&P/ASX 200 Index rose by 0.4 percent, while China’s Shanghai Composite Index slid by 0.8 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the German DAX Index advanced by 0.8 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index both edged up 0.2 percent.

In the bond market, treasuries have moved sharply higher in reaction to the consumer price inflation data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 10.1 basis points at 4.344 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to another slew of U.S. economic data, including reports on weekly jobless claims, industrial production and import and export prices.

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