|Source: LA times
The Dow Jones Industrial Average rose 150 points or 0.4% on Friday, poised to close out its third consecutive week of gains. The rally came after new data showed inflation cooling in June, easing concerns about aggressive Federal Reserve rate hikes.
The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose 0.2% month-over-month and 4.1% from a year earlier. Both figures matched economist forecasts and marked the lowest annual inflation rate since October 2021. The moderating price pressures add to hopes the Fed can slow its pace of rate increases going forward.
Stocks rallied on the inflation data, regaining ground after the Dow snapped a 13-day winning streak on Thursday. The S&P 500 added 0.8% and the tech-heavy Nasdaq jumped 1.7% in Friday trading.
Earnings continued to roll in, with consumer giant Procter & Gamble rising nearly 3% after beating profit and revenue estimates. Chipmaker Intel jumped 6% returning to profitability last quarter, while Roku soared 25% on better-than-expected results. However, Ford shares fell 4% as electric vehicle adoption lagged projections.
“If I paint with a broad brush, it was a good report,” said Liz Young of SoFi on the inflation data. “It’s moving in the direction that we would want things to.”
All three major indexes are poised for weekly gains, with the Dow up 0.9%, the Nasdaq rising over 2%, and the S&P gaining 1.1% since last Friday’s close. The positive momentum comes even after the Dow snapped its longest winning streak since 1987 on Thursday.
While risks remain, moderating inflation paired with strong corporate earnings have fueled hopes of a “soft landing” for the economy. The Fed raised rates by 0.75 percentage points this week, the second such hike in a row. But cooling price pressures could allow them to move to smaller 0.50 point hikes going forward.
Many analysts attributed the rally to the idea that the Fed may not need to be as aggressive about hiking rates if inflation is clearly on the decline. Lower rates would ease pressure on stocks, especially higher-growth tech shares.
The Fed aims for 2% annual inflation. Core PCE, which excludes food and energy costs, provides the central bank’s preferred measure of price stability. At 4.1%, inflation remains well above target but shows a steady downward trajectory.
With positive momentum through earnings season and cooling inflation, the major indexes appear poised to continue their summer rebound. While risks remain, investors seem upbeat on the economic outlook.
Moderating inflation paired with strong corporate results has fueled optimism, putting stocks on pace to close out July with sizable gains.
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