Markets wrap: U.S. stocks, government bonds rally after CPI

The S&P 500 touched a record as all the main American equity indexes advanced in afternoon trading. The tech-heavy Nasdaq 100 was set for its highest level since late April as megacap technology stocks rallied. The 10-year Treasury yield fell to as low as 1.45% following an initial surge in the wake of the inflation report.

The consumer price index data released Thursday showed that the increase in May was driven largely by categories associated with a broader reopening of the economy as vaccinations bring the pandemic under control. The report comes amid a debate about whether the Fed can maintain the dovish stance that has helped lift markets in the face of a strengthening economy that brings the risk of destabilizing inflation. Rangebound trading in equities and falling yields have characterized the start of June as investors awaited some impetus from progress reports on the recovery. A frenzy in meme stocks and gyrations in cryptocurrencies have been among the few sources of pronounced market volatility.

"The frothiness in CPI continues for now but between base effects and pent-up demand pressures, it is probably not giving a definite answer to the great inflation debate, and you need to read the bond market tea leaves," said Anu Gaggar, senior global investment analyst at Commonwealth Financial Network. "The 10-year Treasury yield is back at levels last seen in early March, signaling that the bond market is falling in line with the Fed's thinking that inflation is transitory and does not warrant tapering of monetary stimulus any time soon."

Eight of the main 11 S&P 500 industry groups climbed, with health-care stocks leading the advance. Financial stocks were the outliers, with large banks including JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. among the biggest laggards in the broader index. Amazon.com Inc., Microsoft Corp. and Tesla Inc. contributed the most to the Nasdaq 100's gain. The Dow Jones Industrial Average was around 0.7% below it's all-time closing high.

GameStop Corp. fell after the company said it planned to offer more shares and disclosed that regulators are investigating trading of its stock. Other retail trader favorites were mixed, with some of the stocks that surged amid the frenzy on Wednesday giving back gains.

European stocks closed little changed at a record high, with defensives rallying after the European Central Bank raised its inflation forecast and renewed its pledge to maintain faster emergency bond-buying to sustain the euro area. The Stoxx Europe 600 Index was up less than 0.1% at the close, with banks outperforming. With European equities notching several fresh records in June, investors are growing increasingly sensitive to data and policy statements on inflation that could signal an earlier end to central-bank largesse than expected.

Commodities, one of the leading reflation plays, resumed gains, with the Bloomberg Commodity Index trading around the highest since 2015.

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Here are key events to watch this week:

- Group of Seven leaders' summit starts in Cornwall, England Friday.

These are some of the main moves in markets:

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- The S&P 500 rose 0.5% as of 3:16 p.m. New York time

- The Nasdaq 100 rose 1%

- The Dow Jones Industrial Average rose 0.2%

- The MSCI World index rose 0.4%

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- The Bloomberg Dollar Spot Index fell 0.2%

- The euro was little changed at $1.2175

- The British pound rose 0.4% to $1.4173

- The Japanese yen rose 0.2% to 109.37 per dollar

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- The yield on 10-year Treasuries declined four basis points to 1.45%

- Germany's 10-year yield declined one basis point to -0.26%

- Britain's 10-year yield advanced two basis points to 0.75%

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- West Texas Intermediate crude rose 0.4% to $70 a barrel

- Gold futures rose 0.2% to $1,899 an ounce