Stocks pared gains on speculation that the rally that followed softer-than-expected inflation data went too far, with the Federal Reserve still set to keep its monetary policy tight.
The Nasdaq 100 underperformed a day after closing 20% above its June lows.
Big names like Tesla and Amazon.com retreated.
The S&P 500 traded near the 50% Fibonacci retracement level for the current bear market, with several analysts attributing the recent surge in the gauge to short-covering.
“Bear-market rallies and the start of new bull markets look similar, but we need to see the broad-based momentum to believe this is more than a shorter-term rally,” wrote Victoria Fernandez, chief market strategist at Crossmark Global Investments.
“Have we reached a bottom then? We are not 100% in that camp.”
A key measure of U.S. producer prices unexpectedly fell in July for the first time in more than two years, largely reflecting a drop in energy costs.
Both the overall and core figures were softer than forecast. Consumer-price data out Wednesday also showed a welcome moderation in inflation.
The inflation data is encouraging in the direction of our “our soft-landing scenario,” said Mark Haefele at UBS Global Wealth Management, while recommending a relatively cautious approach.
“With continued ambiguity about the direction of the economy and Fed policy, we reiterate our stance that this is not the time to make big directional calls on the market,” he added.
A separate report showed applications for U.S. unemployment insurance rose for a second week and held near the highest level since November, indicating continued moderation in the labor market.
Swaps continued to imply the odds of a 50-basis-point rate increase at the Fed’s September meeting – rather than a repeat of recent 75-basis-point increases.
“We’ve had developments over the last couple of days that suggest that maybe the environment is getting a little bit better – CPI coming down, PPI coming down,” Anthony Saglimbene, global market strategist at Ameriprise, told Bloomberg Television.
“But inflation is still very, very high. There’s a lot of work for the Federal Reserve to continue to raise interest rates.”
This year, second-quarter earnings from companies whose results have trailed analysts’ estimates have been rewarded with the biggest stock price gains in at least five years.
S&P 500 firms that fell short of expectations gained 0.6% after reporting results, according to data compiled by Bloomberg, in stark contrast to an average 1.2% decline seen during earnings seasons since 2017.
This suggests investors had already priced in negative sentiment into the market before the earnings season kicked off.
In corporate news, Walt Disney Co. shares rose after reporting better-than-expected subscriber growth for its streaming service and saying it would raise the price of Disney+ by 38%.
Cardinal Health Inc. Chief Executive Officer Mike Kaufmann will step down after the drug distributor was beset by years of litigation over its role in the US opioid crisis.
