Stock Market Today: Another Dow Record as Core Inflation Starts to Ease

Wall Street expected red-hot inflation yet again in July, and they got it … but moderation in "core" consumer prices calmed some investor anxieties and helped the Dow and S&P 500 notch record highs for a second consecutive day.

The U.S. Bureau of Labor Statistics reported Wednesday that the headline consumer price index (CPI) grew 0.5% month-over-month and 5.4% year-over-year, largely in line with economists' projections.

However, core CPI, which excludes food and energy, rose by just 0.3% and 4.3%, respectively – lower than expectations.

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"It is an interesting world where 5.4% year-over-year price increases are met with a sigh of relief," says Michael Reinking, senior market strategist for the New York Stock Exchange. "This data does feed some of the 'transitory' argument and since it was no worse than feared shouldn't shift Fed policy expectations."

"The more volatile components that are heavily tied to the economic reopening, as expected, have started to moderate," adds LPL Financial Fixed Income Strategist Lawrence Gillum. "This inflation release came in as expected, and so it doesn't really change our view that we think these higher prices we're seeing currently will subside over time."

Kiplinger Letter Economist David Payne, however, still believes "stronger inflation is likely to stay with us for a while."

Dow Jones Industrial Average component Caterpillar (CAT, +3.6%) had another strong day on the back of the Senate passing an infrastructure bill; Walgreens Boots Alliance (WBA, +2.7%) and Home Depot (HD, +1.7%) also chimed in to help the DJIA close up 0.6% to an all-time high 35,484.

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The S&P 500 (+0.3% to 4,447) also scored a new record, while the Nasdaq (-0.2% to 14,765) lagged again.

Other news in the stock market today:

• The small-cap Russell 2000 improved by 0.5% to 2,250.
• Coinbase Global (COIN, +3.2%) was a notable mover today after the cryptocurrency exchange reported its second-quarter results. For the three-month period, COIN brought in higher-than-anticipated adjusted earnings of $3.45 per share and revenues of $2.23 billion. What's more, monthly transacting users (MTUs) surged 44% from the previous quarter to a record 8.8 million and trading volume increased 38% sequentially to $462 billion. David Trainer, CEO at investment research firm New Constructs, isn't terribly impressed. While the results were strong, they were not "good enough to justify the stock's very expensive valuation of roughly $56 billion," he says. "To justify its current valuation, Coinbase would need to attain higher revenue than established rivals like Nasdaq (NDAQ) and Intercontinental Exchange (ICE), which is a highly unlikely scenario. Even Coinbase's ideal future is already priced into the stock, leaving little upside for investors."
• It was an earnings whiff for WW International (WW), which plunged 24.6% in the wake of its earnings report. In the second quarter, the weight management specialist reported an adjusted profit of 48 cents per share on $311 million in revenues, both figures falling well short of what analysts were expecting. Additionally, the 4.9 million total subscribers WW had in the June quarter was down from the year prior. This prompted a downgrade to Hold from Buy at Jefferies, though analyst Stephanie Wissink says they still "see long-term areas of intrigue" on the name.
• U.S. crude oil futures rose 1.4% to finish at $69.25 per barrel. Today's gain came as data showed a decline in domestic crude inventories last week, which offset reports the White House is urging the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to raise oil output by more than what was agreed upon at their July meeting.
• Gold futures jumped 1.2% to settle at $1,753.30 an ounce.
• The CBOE Volatility Index (VIX) declined by 4.5% to 16.03.
• Bitcoin prices gained 2.1% to hit $46,483.13 – a level it last saw in mid-May. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

Aim for the Middle

A market doubler in about 17 months? We're close!

Howard Silverblatt, senior index analyst for S&P Dow Jones Indices, wrote late last night that the S&P 500 was 0.86% away from doubling on a pure price basis since the March 23, 2020, lows; as of today's close, the index is now just 0.61% away.

That's great for those of you holding S&P 500 funds, but don't get too smug – smaller stocks have rebounded even more. The S&P SmallCap 600 Index has roared far louder out of the bear-market trench, up 129% in the same time, following a well-worn historical pattern of small-cap stocks thriving in the early stages of an economic recovery.

Today, however, we want to give the spotlight to mid-cap stocks, which often get lost in the shuffle despite excellent risk-adjusted performance.

The S&P MidCap 400 has snapped back by 125% since last March – only slightly less than the small-cap index, but with noticeably less volatility. That's just what mid-cap stocks do.

These "Goldilocks" companies (typically between $2 billion and $10 billion in market value) can offer the best of two worlds: better financial stability and access to capital than their small-cap counterparts, but also more robust growth prospects than their large-cap contemporaries.

This group of 11 mid-cap stocks is exemplary of this dynamic.