Big Tech dents stock rally with tech giants in play

Stocks erased gains on speculation the rally that followed softer inflation data went too far, with the Federal Reserve still set to keep its monetary policy tight. Bond yields climbed.

The S&P 500 edged lower after an advance that topped 1% earlier in the day and put the gauge near the 50% Fibonacci retracement level for the current bear market.

Several analysts attributed the recent surge to short-covering.

Tech underperformed following a run-up that sent the Nasdaq 100 more than 20% above its June lows.

Big names like Tesla and Amazon.com sank.

Treasuries dropped, sending 30-year yields soaring nearly 16 basis points after an auction of the securities drew middling demand despite having cheapened into the bidding deadline.

A key measure of U.S. producer prices unexpectedly slipped for the first time in more than two years, largely reflecting a drop in energy costs.

Similar to the consumer prices report on Wednesday, both the overall and core figures were softer than forecast.

Even so, inflation remains stubbornly high and will likely keep the Fed on an aggressive path to curb it.

Swaps continued to price in a 50-basis-point rate hike by the U.S. central bank in September.

“We’ve had developments over the last couple of days that suggest that maybe the environment is getting a little bit better,” 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.”

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.

UBS Global Wealth Management’s Mark Haefele reiterated his stance that “this is not the time to make big directional calls on the market” amid “ambiguity about the direction of the economy and Fed policy.”

Meantime, equities have been bolstered by a better-than-expected earnings season, with companies that have trailed analysts’ estimates actually being rewarded with the biggest stock gains in at least five years.

S&P 500 firms that missed expectations rose 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 before the reporting season kicked off.