An encouraging reading on inflation lit a fire under stocks Thursday, with all three indexes closing solidly higher. Another sign that the labor market is starting to soften only created bigger tailwinds for stocks, while quarterly results from Delta Air Lines (DAL) gave investors a sneak peak into Q1 earnings season.
The Bureau of Labor Statistics said this morning that its producer price index (PPI), which measures what businesses are charging suppliers for goods, fell 0.5% month-over-month in March. Not only did this beat expectations for a flat reading, but it was the biggest decline since April 2020.
This follows yesterday's mixed consumer price index (CPI) report. While the headline March CPI moderated sharply from February, core CPI, which excludes volatile energy and food prices and is often a better indicator of future inflation, came in higher than the month before.
Still, signs continue to show that the Federal Reserve's efforts to cool inflation by slowing the economy are working. In addition to this morning's PPI, data from the Labor Department showed that the number of individuals applying for unemployment insurance rose by 11,000 last week to 239,000. While this is certainly not an earth-shattering figure, it is the highest level since mid-January 2022, and does point to weakening in a stubbornly tight labor market.
"Today's inflation readings showed a little bit more softness as supplier prices fell 0.5% in March, well below the consensus of a flat reading and the biggest drop in since the start of the pandemic," says Edward Moya, senior market strategist at currency data provider OANDA, adding that labor market weakness will need to pick up in order for this disinflationary trend to continue. Still, "bad news is once again good news for stocks," Moya says.
Indeed, nine of the 11 sectors finished higher today, led by consumer discretionary (+2.2%) and communication services stocks (+2.1%). On the flip side, real estate (-0.3%) and utility stocks (+0.01%) – two of the typically "safer" sectors – lagged.
As for the major indexes, the Nasdaq Composite popped 2.0% to 12,166, the S&P 500 climbed 1.3% to 4,146, and the Dow Jones Industrial Average gained 1.1% to 34,029.
Delta earnings
Another headline today: Delta Air Lines earnings. The air carrier is one of the early reporters of first-quarter earnings, unveiling its results ahead of today's open.
For the three-month period, Delta swung to a profit of 25 cents per share, though this fell short of analysts' consensus estimate. Revenue, however, jumped 36.5% to $12.8 billion to beat expectations, and the company gave strong current-quarter guidance thanks to "record advance bookings," said Delta CEO Ed Bastian in the earnings call.
After being higher in pre-market trading, the industrial stock finished the session down 1.1%.
A top financial stock pick ahead of earnings
Next up on the earnings calendar are big banks, with JPMorgan Chase (JPM) and Wells Fargo (WFC) among those reporting tomorrow morning.
"Investors are counting on strong earnings to help the year-to-date stock market rally continue, which is why this upcoming first-quarter earnings season is so important," says David Trainer, CEO of Nashville-based investment research firm New Constructs. Bank earnings typically set the stage for the rest of earnings season, he adds, and commentary from bank CEOs will help investors gauge the probability of an upcoming recession.
As for the best stocks to buy in the financial sector, Trainer taps JPM as a "favorite," saying "the company stands to gain regardless of how the recent crisis of confidence in the banking sector plays out." And if more regional banks collapse, JPMorgan is "likely to attract more assets."
