U.S. stocks rose Friday after a key U.S. government report on inflation bolstered expectations on Wall Street that the Federal Reserve is poised to cut interest rates next month for the first time in more than four years.
The S&P 500 rose 0.5% in morning trading, with nearly 80% of the stocks in the index trading higher. The Dow Jones Industrial Average added 53 points, or 0.1%, and is on pace to set an all-time high for the fourth time this week. The Nasdaq composite rose 0.8% as of 10:47 a.m. Eastern.
The Commerce Department said its personal consumption and expenditures report showed prices rose just 0.2% from June to July, up slightly from the previous month’s 0.1% increase. Compared with a year earlier, inflation was unchanged at 2.5%.
Economists had expected the PCE, which is the Federal Reserve’s preferred measure of inflation, would to show that inflation edged up to 2.6% in July. It was as high as 7.1% in the middle of 2022.
The report confirms price increases are cooling, keeping the central bank on track to cut rates at its upcoming meeting next month. The market is betting that the Fed will cut its benchmark rate by a full 1% by the end of the year.
“Weakening inflation gives the Fed plenty of room to begin cutting rates, while still resilient household spending is the recipe for a soft landing,” said David Alcaly, lead macroeconomic strategist at Lazard Asset Management.
Bond yields were mixed in the Treasury market. The yield on the 10-year Treasury was holding steady at 3.86%.
Chipmakers rose broadly, led by Marvell Technology, which was up 6.5% after its latest quarterly results hit Wall Street’s sales and profit targets. Broadcom rose 3% and Nvidia added 1.7%.
Dell also beat analysts’ second-quarter forecasts, boosted by record server and networking revenue as companies continue to beef up their artificial intelligence infrastructure. Its shares rose 1.8%.
Mall-based cosmetics retailer Ulta Beauty fell 2.6% after its sales and profit fell short of expectations. Ulta also trimmed its guidance below analysts’ forecasts. Warren Buffet’s Berkshire Hathaway revealed it holds a stake in the company earlier this month,
Mostly solid U.S. earnings and economic growth updates are capping off a month of encouraging reports for the broader economy. Data from various reports in August have shown that retail sales, employment and consumer confidence remain strong.
Friday’s Commerce Department report also showed that Americans stepped up their spending by a vigorous 0.5% from June to July, up from 0.3% the previous month, and incomes rose 0.3%, faster in July than in the previous month.
The trends have encouraged Wall Street. The benchmark S&P 500 is on pace to close out the final trading day of August with a 1.8% gain for the month. The index is up nearly 18% this year and is within 1% of the all-time high it set in July.
Markets in Europe rose following a report showing inflation fell sharply in the European Union this month. The report sets up the European Central Bank to cut interest rates next month.
France's CAC 40 added 0.2%, Germany's DAX ticked up 0.1%, and Britain's FTSE 100 gained 0.2%.
Markets in Asia rose. Japan’s benchmark Nikkei 225 added 0.7% to finish at 38,647.75 after data on the world’s fourth largest economy came in mostly positive.
