Major stock indexes extended their record highs Wednesday after new economic data showed recently spiking inflation may finally be moderating, but although ongoing supply shortages aren’t hiking up prices more quickly, they are still dealing a blow to chip-making stocks, which pushed the broader technology sector lower for a second-straight day alongside a plummeting vaccine-maker.
After closing at record highs Tuesday, the Dow Jones Industrial Average climbed 220 points, or 0.6%, to 35,484 on Wednesday, while the S&P 500 ticked up 0.3% to 4,447 points; the indexes are now up about 17% and 20%, respectively, this year.
Ushering in the broad market gains, morning inflation data showed prices rose 5.4% last month on an annual basis, matching record growth from June but allowing investors to “breathe a little easier” knowing the recently spiking metric may finally be peaking, Oanda Senior Market Analyst Craig Erlam said in a Wednesday note.
Despite the bullish inflation reading, however, the tech-heavy Nasdaq sank for the second day in a row, falling 0.2% to 14,765, paring back its gain to just 16% this year.
Heading up the losses in the index, vaccine-maker Moderna plunged more than 15% after Bank of America warned in a Tuesday note the company’s valuation, of nearly $200 billion, was “ridiculous” in light of expectations that demand for Covid-19 vaccines will eventually wane and tank revenues from ane stimated $20 billion this year, to about $5.7 billion in 2023.
Meanwhile, chipmakers Applied Materials, Lam Research and Nvidia extended losses from Tuesday, falling as much as 2% Wednesday after market research firm TrendForce warned computer chip prices should fall later this year due to supply shortages, which have hit the semiconductor industry particularly hard during the pandemic.
As markets crashed at the height of pandemic uncertainty in March 2020, Fed Chair Jerome Powell pledged to use the Fed’s “full range of tools to support the U.S. economy” until “substantial further progress” is made toward a full economic recovery. Since then, the Fed has kept interest rates at historically low levels while injecting about $120 billion into the economy each month through bond purchases, fueling stocks on a nearly unabated rally. The S&P has skyrocketed nearly 93% from a mid-pandemic low, while the Dow and Nasdaq are up 85% and 115%, respectively. Fears that the government’s heightened spending could spur problematic inflation have triggered bouts of volatility this year, but the Fed has repeatedly insisted it doesn’t believe price spikes have thus far been problematic, and Wednesday’s data helps bolster the central bank’s case.
“Easing price pressures, an economy that’s recovering strongly and a labor market that’s rapidly improving will be music to the ears of Fed policy makers,” Erlam said Wednesday. “While it may not change the start date, or even pace, of tapering, it will give [the Fed] an additional degree of comfort.”