Dow Goes Berserk as Core Inflation Growth Spikes to 17-Month High

The Dow Jones Industrial Average diverged from the broader U.S. stock market Thursday after consumer inflation posted its biggest monthly gain in almost one-and-a-half years, challenging the narrative that the Federal Reserve needs to cut interest rates aggressively to boost the economy.

Dow Outperforms S&P 500, Nasdaq

The DJIA surged to record highs on Thursday, peaking at 27,072.11. The blue-chip index would eventually consolidate at 27,022.67, having gained 162.47 points or 0.6%.

Dow Jones Industrial Average leapfrogs broader U.S. stock market on Thursday en route to fresh record highs. | Source: Yahoo Finance.

Shares of UnitedHealth Group Inc. (NYSE: UNH), a primary Dow constituent, surged 5% after the Trump administration dropped a proposal that would have eliminated rebated drug rebates from government plans.

The health care sector as a whole was down on Thursday along with utilities and real estate, which offset gains in financials and industrials stocks. As a result, the S&P 500 Index of large-cap stocks flat-lined at 2,994.31. Earlier, the S&P 500 jumped to an intraday record above 3,000.

Meanwhile, the technology-focused Nasdaq Composite Index fell 0.2% to 8,187.00.

Consumer Inflation Gathers Pace

Core inflation gathers pace in June, but likely won't be enough to alter the Federal Reserve's planned rate cut later this month. | Source: Shutterstock.

U.S. consumer prices rose faster than expected in June, offering an encouraging sign that the economy was returning to health after a disappointing second quarter.

The consumer price index (CPI) edged up 0.1% from May and 1.6% compared with a year ago, the Labor Department reported Thursday. Analysts in a median forecast were expecting no change to monthly CPI.

So-called core inflation, which strips away volatile goods such as food and energy, climbed 0.3% month-over-month and 2.1% annually. Analysts in a median forecast were calling for a monthly gain of 0.2% and an annual increase of 2%.

The Federal Reserve targets inflation at 2% annually, but relies on another measure called the core personal consumption expenditure (PCE) index.

Separately, the Labor Department said initial jobless claims plunged last week to their lowest levels in three months. The number of Americans filing for first-time unemployment benefits declined 13,000 to a seasonally adjusted 209,000 in the week ended July 6.

Click here for a real-time Dow Jones Industrial Average (DJIA) price chart.

Last modified (UTC): July 11, 2019 9:41 PM

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Sam Bourgi @hsbourgi

Financial Editor to CCN Markets, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com

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