U.S. stocks rose on Tuesday, despite no progress in efforts to negotiate another stimulus package, and after data showed inflation had strengthened in July.
The Dow Jones Industrial Average rose 289.9 points, or 1%, to 27,976.84. The S&P 500 climbed 46.7 points, or 1.4%, to 3,380.4, 0.2% below its closing record of 3,386.2. The Nasdaq Composite gained 229.4 points, or 2.1%, to 11,012.2.
The consumer price index rose 0.6% for the month, twice as fast as expected. It rose 1% over the year, faster than the 0.7% increase expected by economists. Excluding food and energy price volatility, it rose 0.6% for the month and 1.6% for the year, also more than economists had estimated.
Stocks briefly cut their gains after the news broke, but rallied soon after. While higher-than-expected inflation sometimes scares the markets by increasing the risk of a Federal Reserve interest rate hike, inflation remains well below the Fed’s 2% target. And the central bank has assured investors that it does not plan to raise rates until the pandemic is well behind the United States.
T-bills, on the other hand, held onto their price losses as inflation eroded the value of long-term bond yields.
Inflation aside, a few other factors may account for the continued decline in US bond prices. First, the Treasury Department is selling a record amount of coupon securities this week, after announcing a larger than expected increase in the size of its long-term debt sales. Second, safe markets like Treasuries tend to fall when riskier equity markets recover.
European stocks were also climbing on Wednesday, even as the number of coronavirus cases began to climb across the continent and after the UK reported a sharp economic contraction created by the pandemic.
The pan-European Stoxx 600 index climbed 1.1%, while the German DAX rose 0.9%. The FTSE 100 rose 1.7%, despite falling UK gross domestic product in the second quarter.
The decline in economic activity in the UK in the second quarter was the worst of any major European economy during the pandemic. GDP plunged 20.4%, double the blow suffered by Germany. However, the figure was above economists’ expectations of a 21.2% drop. There were signs of recovery as the economy rebounded 8.7% in June, also above expectations.
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Investors had been hoping for another coronavirus relief program in the United States, but negotiations appear to be going nowhere. Late Tuesday, Senate Majority Leader Mitch McConnell accused Democratic lawmakers of using the pandemic as a “political game” and of trying to add demands unrelated to the coronavirus crisis into plans for relief.
The threat of a second wave of the pandemic, meanwhile, has remained heightened, with cases in France having doubled in the past 24 hours. Germany’s daily infection rate has risen above 1,000 for the fourth time in a week.
Just Eat Takeaway stock rose 3.7%, after the food delivery company announced an increase in revenue and orders in the first half of the year when it benefited from coronavirus lockdowns at across Europe. However, the company said pre-tax losses widened to 121 million euros, from 7 million euros a year earlier, mainly due to costs related to the merger between Just Eat and Takeaway.com and the planned acquisition of Grubhub..
Admiral Group shares soared 7.2% as the UK-listed insurance company announced it would pay the special dividend it deferred during the height of the pandemic after rising 31% profit before tax in the first half of the year.
Moderna (ticker: MRNA) rose 0.8% after the company announced the signing of an agreement with the US government to provide 100 million doses of its potential Covid-19 vaccine for 1.5 billion dollars.
Tesla (TSLA) shares rose 13% after management announced a five-to-one stock split, making it easier for retail investors to get their hands on the automaker’s expensive shares of electric cars. The stock will begin trading on a split adjusted basis on August 31.
Eastman Kodak (KODK) shares were down 2.9% after the former photo giant reported a second quarter loss. But the share price has more than quadrupled in the past three weeks, as investors were encouraged by Kodak’s plans to enter the pharmaceutical ingredients business.
Write to Alexandra Scaggs at [email protected] and Carleton English at [email protected]