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Stocks close mixed after further signs of slowing inflation

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By STAN CHOE and ALEX VEIGA, AP Business Writers

NEW YORK (AP) — An afternoon pullback left Wall Street stock indexes mixed, wiping out most of their morning gains fueled by another encouraging inflation report. The S&P 500 closed down 0.1% on Thursday. The Nasdaq also fell, while the Dow Jones Industrial Average rose slightly. Investors weighed new data showing that wholesale inflation slowed more than economists expected in July. This bolstered hopes that inflation could be close to a peak and that the Federal Reserve will be less aggressive than expected in raising interest rates. Stocks pared their gains after Treasury yields rose. The Walt Disney Co. rallied after reporting stronger-than-expected quarterly results.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier history appears below.

Wall Street stock indexes turned mixed late Thursday afternoon, losing some of their early gains on more encouraging inflation data.

The S&P 500 fell 0.1%. The benchmark was up 1.1% at the start after a report showed inflation at the wholesale level had slowed more than economists expected. The report bolstered investor hopes that inflation could be close to a peak and that the Federal Reserve will be less aggressive than expected in raising interest rates.

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The market is coming off a strong rally on Wednesday, when relief swept through the markets after a colder-than-expected reading on consumer-level inflation.

The Dow Jones Industrial Average rose 10 points, or less than 0.1%, to 33,323 as of 3:28 p.m. EST, and the Nasdaq composite was down 0.6%. All indices rose further in the morning but pared their gains after Treasury yields rose.

Inflation is still painfully high, of course, and the economy gave false signals before relief was on the way, but the rug has been pulled out of lower investors. Some Fed officials also made comments after Wednesday’s inflation report, suggesting their battle against rising prices is far from over. But enough hope for a spike in inflation and the Fed’s aggressiveness piled up that the S&P 500 had roughly halved its losses from the start of the year, and it rose more than 15 % from its mid-June low.

Tech stocks and other investments hardest hit early in the year by the Fed’s aggressive rate hikes were among the strongest, and the Nasdaq climbed more than 20% from its June low.

Thursday’s encouraging signal on inflation helped fuel a broad-based rally that faded in the afternoon, with declines in health care and technology stocks offsetting gains from energy companies, banks and others .

The Walt Disney Co. jumped 4.5% after the entertainment company reported higher earnings for its latest quarter than analysts expected. It cited strong performance at its US theme parks and announced price increases for its streaming services.

Companies whose earnings depend most on a strong economy have generally held up better. Energy stocks as a group rose 3.4% for the biggest gain among the 11 sectors that make up the S&P 500. They benefited from higher oil and natural gas prices. Shares of commodity producers in the index gained 0.5% and financial companies rose 1%.

Concerns about a possible recession still loom in the market, as the Federal Reserve continues to raise interest rates to fight inflation. Such increases are purposely slowing the economy, and parts of the economy have already weakened under their weight, particularly the housing industry. But a resilient labor market provided a strong counterbalance, leading to a confused outlook for the economy.

A report on Thursday showed fewer American workers filed unemployment claims last week than expected, a potentially encouraging sign regarding layoffs. But it was nonetheless the highest number since November.

Traders are now betting on the Fed to raise overnight interest rates by half a percentage point at its meeting next month. That’s down from the 0.75 percentage point rise they were forecasting ahead of Wednesday’s stun of a consumer inflation report.

The Fed’s last two hikes were 0.75 points, an acceleration from its previous two hikes of the year as the central bank intensified its fight against high inflation. Even if the Fed manages to slow the economy enough to eradicate inflation without causing a recession, higher interest rates drive down the prices of all types of investments.

Treasury yields were mixed on Thursday, after paring earlier losses. The 10-year yield rose to 2.88% from 2.79% on Wednesday evening.

It is still lower than the two-year yield, which stands at 3.20%. It’s a relatively unusual event that some investors consider a fairly reliable signal of an impending recession, although the gap between the two has narrowed somewhat.

In overseas markets, European stocks ended mixed, while Asian indices were mostly higher.

In Thailand, the SET fell 0.2% after the country’s central bank raised its benchmark interest rate by 0.25 percentage points to 0.75% a day earlier. The Southeast Asian country’s economy has been hit hard by the pandemic, which has ravaged its all-important tourism sector.

AP Business Writer Elaine Kurtenbach contributed. Veiga reported from Los Angeles.

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