Nasdaq, S&P 500 retreat as rate hike fears cool stock rally
* U.S. producer prices fall in July, underlying inflation slows
* Disney tops Netflix on streaming subscribers, shares jump
* U.S. weekly jobless claims rise for second straight week
By Herbert Lash and Bansari Mayur Kamdar
NEW YORK, Aug 11 (Reuters) - The Nasdaq and S&P 500 retreated to close lower on Thursday on the realization the Federal Reserve still needs to aggressively boost interest rates to fully tame rising consumer prices despite fresh evidence of cooling inflation.
The S&P 500 .SPX closed a tad lower after earlier hitting fresh three-month highs following data that showed the U.S. producer price index (PPI) unexpectedly fell in July.
The drop in PPI raised bets in futures markets that the Fed would hike rates by 50 basis points in September instead of 75 basis points as was expected earlier in the week.
The S&P 500 and Nasdaq surged more than 2% on Wednesday after a softer-than-expected read on consumer prices. But policy-makers have left little doubt they will tighten monetary policy until inflation pressures fully abate.
With the labor market showing signs of softness as the number of Americans filing new claims for unemployment benefits rose for the second straight week, the Nasdaq turned lower as investors questioned the economy's strength.
"It was a better CPI print yesterday than expected and a better PPI print this morning than forecasted by analysts. So it fit that theme, that peak inflation has occurred as energy continues to decline," said George Catrambone, head of Americas trading at DWS Group. "But I would be concerned about a head fake."
The Dow Jones Industrial Average .DJI rose 27.16 points, or 0.08%, to 33,336.67, while the S&P 500 .SPX slid 2.97 points, or 0.07%, to 4,207.27 and the Nasdaq Composite .IXIC dropped 74.89 points, or 0.58%, to 12,779.91.
Volume on U.S. exchanges was 12.36 billion shares, compared with the 11.06 billion average for the full session over the past 20 trading days.
Six of the 11 major S&P 500 sectors declined, with health care .SPXHC leading. Energy .SPNY rose 3.2% to lead gainers and help value stocks .IVX advance 0.4% as growth shares .IGX fell 0.5%.
Banks .SPXBK extended their rally with Goldman Sachs GS.N and JPMorgan Chase & Co JPM.N rising 1.1% and 1.5%, respectively.
Benchmark U.S. Treasury yields hit more than two-week highs as bond investors bet the Fed will press on with hiking rates as inflation is still hot, even though price pressures have eased a bit.
Demand, as seen by an almost 9% increase in aggregate spending power, is still too strong and may lead the Fed to stay aggressive longer than many hope, said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions.
"We're becoming a little more worried because the Fed might have to do a little bit more work to try to cool that excess demand side of the equation," Janasiewicz said.
High-growth stocks that had rallied on Wednesday fell, Tesla Inc TSLA.O down 2.6% and Amazon.com Inc AMZN.O off 1.5%.
Despite its recent bounce of mid-June lows, the tech-heavy Nasdaq is down about 18% so far this year as fears of an aggressive monetary policy have sapped appetite for equities, particularly high-growth stocks.
The U.S. central bank has raised its policy rate by 225 basis points since March as it battles to cool demand without sparking a sharp rise in layoffs.
In earnings-driven news, Walt Disney DIS.N jumped 4.7% as the media giant edged past rival Netflix Inc NFLX.O with 221 million streaming customers and announced it will increase prices for customers who want to watch Disney+ or Hulu without commercials.
Bumble Inc BMBL.O fell 8.6% on cutting its full-year revenue forecast, taking a hit from the Ukraine war, while also grappling with competition from rival Match Group Inc MTCH.O in the online dating market.
Advancing issues outnumbered declining ones on the NYSE by a 1.54-to-1 ratio; on Nasdaq, a 1.25-to-1 ratio favored advancers.
The S&P 500 posted four new 52-week highs and 29 new lows; the Nasdaq Composite recorded 69 new highs and 22 new lows.
Reporting by Herbert Lash, additional reporting by Bansari Mayur Kamdar and Aniruddha Ghosh in Bengaluru; Editing by Arun Koyyur and Lisa Shumaker
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.