Stocks close mixed on surprise wholesale inflation.

Stocks close mixed on surprise wholesale inflation.

Stock Market Takes a Hit as Inflation Surprises to the Upside

Stock Market

Stocks closed mixed on Friday as market participants grappled with an unexpectedly high reading on wholesale-price inflation. Despite pockets of strength in certain sectors, two of the three major indexes ended the day in the red.

Downbeat economic data dominated Friday’s session as investors digested an unwelcome reading on inflation in the form of the Producer Price Index (PPI). The Bureau of Labor Statistics reported that PPI, which measures wholesale prices, rose 0.3% in July, marking the highest reading since January and indicating an acceleration in inflation compared to the previous month, when prices were flat. Analysts were expecting a more modest increase of just 0.2% for July.

Even more alarming was the performance of the core producer price index, which excludes volatile food, energy, and trade services prices. This index is considered a better indicator of future inflation, and it also surprised to the upside. Core PPI rose 0.2% in July, the largest gain since February, compared to a 0.1% increase the previous month.

The disappointing PPI report, coming on the heels of an encouraging reading on consumer price inflation just one day earlier, served as a stark reminder that the Federal Reserve’s fight against inflation is far from over. Giampiero Fuentes, an analyst at Raymond James, notes, “The higher-than-expected PPI is not great news for the Fed as PPI tends to be a leading indicator for consumer inflation. Today’s report continues to show signs that while inflation has been decelerating, the Fed’s journey to bring it to its 2% target is not over, and it will take more months of positive data to convince the Fed that it is.”

Thursday’s July Consumer Price Index (CPI) report had shown that core inflation posted its smallest back-to-back monthly increase in two years, offering a glimmer of hope amidst concerns about rising prices.

Blue Chip Oil Stocks Buck the Trend

Friday’s selling pressure was largely felt by pricey tech stocks, which drove the Nasdaq Composite down 0.7% to close at 13,644. However, select blue-chip stocks in the energy sector managed to defy the negative trend. Rising prices for crude oil, driven by forecasts of a supply deficit, brought gains to U.S. benchmark crude futures, which rose by 32 cents to $83.09 a barrel. This development resulted in winning performances for oil and gas giants such as Exxon Mobil (+1.5%), ConocoPhillips (+1.7%), and Chevron (+2.0%) — a Buy-rated Dow Jones stock.

Thanks to Chevron’s strong performance, the Dow Jones Industrial Average managed to escape the day with a gain, closing up 0.3% at 35,285.

While the stock market had its share of ups and downs on Friday, it is important to monitor the bigger picture. Rising inflation levels and their implications for the Federal Reserve’s monetary policy remain a critical concern. However, the positive performance of oil and gas stocks offers some solace and demonstrates the role of sector rotations in managing risk and finding opportunities amidst market volatility.

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