PayPal surged 17.2% on Wednesday after sources told Reuters that Stripe and private equity firm Advent International have jointly offered to acquire it for $60.50 per share, a move that would hand another giant payment platform to private capital at around a 28% premium to its Tuesday close.
The market liked that. Ordinary people, not so much. The same session saw the Labor Department's Producer Price Index show a second straight day of cooler-than-expected inflation data, while newly confirmed U.S. Federal Reserve Chair Kevin Warsh sat through his second day of Congressional testimony before the Senate Banking Committee. The machinery of finance kept humming, and the people at the bottom kept absorbing the consequences.
Who Has the Power
Wall Street stocks gained ground on Wednesday as softening inflation data and a robust beginning of second-quarter earnings season put investors in a buying mood. All three major stock indexes closed modestly higher despite weakness in semiconductors, with consumer-focused retail and travel/leisure clear outperformers. The Dow Jones Industrial Average rose 150.91 points, or 0.29%, to 52,659.18, the S&P 500 gained 28.83 points, or 0.38%, to 7,572.42 and the Nasdaq Composite gained 162.22 points, or 0.62%, to 26,269.23.
That’s the language of the market’s rulers: indexes up, shares up, appetite up. PayPal jumped 17.2%. BlackRock shares advanced 6.6%. Morgan Stanley ended the session up 0.4%. A second day of solid bank earnings added momentum to what traders called an auspicious beginning to second-quarter reporting season. BlackRock and Morgan Stanley both beat quarterly profit expectations.
"Everything looks great with the bank earnings," said Mike Dickson, head of portfolio management at Horizon Investments in Charlotte, North Carolina. "I would not be at all surprised to see another bang-out quarter."
Who Pays for the Setup
Analysts currently expect second-quarter year-on-year S&P 500 earnings growth of 23.7%, according to the most recent data from LSEG. That’s the number the market worships. It’s also the number that tells you where the pressure sits: on workers, consumers, and everyone else expected to keep the machine fed while profits climb.
The Labor Department's Producer Price Index report provided a second straight day of cooler-than-expected inflation data, even as inflation remains elevated due to the U.S.-Israeli war on Iran. Combined with Tuesday's CPI report, the PPI data suggests that inflation took a step in the right direction last month. That eased near-term pressure on the central bank to raise its key interest rate.
Lauren Cassidy, chief investment officer of Founders 100 ETF in Dallas, said, "My fear going into this week was, we could get a hot CPI print, inflation above 3.8%, and we didn't get it; we got a cooler reading of 3.5%. So that allows the Federal Reserve to have the opportunity to keep rates flat or cut them later this year, which is good news for the market."
The market is currently pricing in a 10.2% likelihood that the Fed will implement a 25-basis-point rate hike at the conclusion of this month's monetary policy meeting, down from 31.0% a week ago, according to CME's FedWatch tool. The central bank’s next move remains a matter for traders, bankers, and officials. The rest of the public gets to live with the fallout.
What Their “Stability” Looks Like
This week's inflation data was focused on last month, when investors were growing optimistic that negotiators were moving toward a peaceful resolution to the Middle East conflict. That optimism has faded in recent days as the U.S. and Iran staged escalating airstrikes, vying for control over the Strait of Hormuz. That could result in renewed price pressures.
Fed Governor Lisa Cook said she is "prepared to act" if inflation does not soon begin to slow. The sentence lands like a warning from the apparatus itself. The people who will feel those decisions first are not the ones sitting on trading desks or testifying before the Senate Banking Committee.
Advancing issues outnumbered decliners by a 1.5-to-1 ratio on the NYSE. There were 269 new highs and 124 new lows on the NYSE. On the Nasdaq, 2,647 stocks rose and 2,107 fell as advancing issues outnumbered decliners by a 1.26-to-1 ratio. Volume on U.S. exchanges was 16.27 billion shares, compared with the 21.40 billion average for the full session over the last 20 trading days.
The numbers moved. The hierarchy stayed put.