Stock futures traded little changed Thursday evening as investors looked beyond a hotter-than anticipated report on inflation.
Contracts on the S&P 500 hugged the new line after the index set a new record high during the regular trading day. During the trading day, the health care, economics and information technology sectors lagged while the cyclical financials and the industrials sectors outperformed. The 10 year yield replaced and erased earlier gains for a 1.5% return below 1.5%.
The Bureau of Labor Statistics has reported that the end consumer price index in May increased to 5.0% or most since 2008. Core consumer prices, which exclude volatile food and energy prices, have surged since the 1990s at the fastest rate, after an already strong April report.
The market reaction to the March report, however, was less negative than its response to the April report last month.
The outlook on inflation was rightfully top of mind after May's blowout report, said LPL Financial CEO of Market Strategist Ryan Detrick in a note Thursday. But under the hood, we think the picture is a bit more optimistic than headlines suggests and still believe inflation will remain relatively well-contained over the intermediate to long term.
Investors have taken into account recent commentary from officials at the Federal Reserve, with many saying they only saw temporary increases as Pandemic-depressed jumps off 2018 price increases. The next week's Federal Reserve decision would help further strengthen this position and solidify that the central bank still believes the economy has a way to go in recovering from the pandemic before the Fed wants to adjust its quantitative easing program or raise rates.
I think there are some investors worried that if inflation is too high, there could be fears of Fed tightening and a real significant tightening of financial conditions and that would weigh on securities, Brian Levitt, Invesco Markets market strategist, told Yahoo Finance. I would argue that it's a market that is saying, yea it's got out of hand and it's not going to get inflationary. You may see some steps to normalize the policy over time.
I think what we'll see as the year progresses is that growth is there, there is some pricing pressure but the Fed is going to let it run and cyclically, rates should move up from here. That's not to say that the rates do not, he added. We're still going to be in a structurally low interest rate environment, probably for the rest of our careers if not the rest of our lives. But I do not see why the rate should move higher in an improving growth background in which Fed is telling us that they're not going to increase short rates for some time.
7 : 52 p.m. ET Thursday: Stock futures trade near the flat line.
Emily McCormick is a reporter for Yahoo Finance. Follow her on twitter: emily mcck
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