Growth stocks are pushing the S&P 500 and the Nasdaq to record highs; inflation data weighs heavily

(Reuters) – The S&P 500 and Nasdaq hit new highs on Tuesday, helped by a rise in mega-cap stocks and a positive start to the earnings season, while a solid rise in consumer prices in June weighed on sentiment.

Only four of the top 11 S&P 500 sector indices were trading higher, with the tech sector rising 1.1% to also hit a new high, supported by heavyweights like Apple Inc and Microsoft Corp.

Growth stocks were also boosted by a decline in the benchmark 10-year Treasury yield after data showed U.S. consumer prices rose the most in 13 years last month, while the Core CPI jumped 4.5% on a year-over-year basis, the biggest increase since November 1991, after jumping 3.8% in May.

“The real question everyone is concerned about is how long these hot inflation numbers will last,” said Mike Loewengart, managing director of investment strategy at E * TRADE Financial.

“Each successive reading of high inflation will make it increasingly difficult for the Federal Reserve to stay dovish.”

Investors fear that an overheating economy in a context of faster reopening will force the Fed to reduce its ultra-accommodative monetary policies sooner than expected.

The energy, finance and economics-related sectors were the furthest behind, falling by more than 1% each.

Rate-sensitive banks fell 2.0% even as JPMorgan Chase & Co and Goldman Sachs Group Inc reported higher-than-expected quarterly profits. JPMorgan suffered from a well-reported slowdown from record business results last year.

PepsiCo Inc gained 2.6% after raising its full-year profit forecast, betting on demand accelerating as COVID-19 restrictions continue to ease.

“We know Q2 is going to be an amazing earnings season. The question is, could we be at the peak of earnings growth and peak of economic growth?” Said Jon Adams, senior investment strategist at BMO Management global asset base.

“Overall, earnings strength is built into stock valuations and if earnings continue to surprise on the upside, or if expectations are high, it should be positive for stocks.”

June quarter earnings per share for S&P 500 companies set to rise around 66%, Refinitiv data shows, with market participants wondering how long the Wall Street rally would last after rising nearly 17%. % of the benchmark so far this year.

All eyes would now be on the testimony in Congress of Fed Chairman Jerome Powell on Wednesday and Thursday for his comments on rising price pressures and monetary support going forward.

At 12:05 p.m. ET, the Dow Jones Industrial Average was down 21.92 points, or 0.06%, to 34,974.26, the S&P 500 was up 5.66 points, or 0.13%, at 4,390.29, and the Nasdaq Composite was up 63.97 points, or 0.43%, to 14,797.21.

Conagra Brands Inc fell 4.3% after the packaged food company warned higher raw material and ingredient costs would cut profits this year more than expected.

Boeing Co fell 3.3% after the Federal Aviation Administration said Monday night that some undelivered 787 Dreamliners had a new build quality issue.

Falling issues outnumbered advances for a 1.92-to-1 ratio on the NYSE and a 2.17-to-1 ratio on the Nasdaq.

The S&P Index recorded 39 new 52-week highs and no new lows, while the Nasdaq recorded 54 new highs and 42 new lows.