Stocks Climb as Inflation Data Supports Fed Cut Outlook

U.S. equities ended the week higher as a key inflation measure aligned with expectations, encouraging traders to keep pricing in Federal Reserve rate cuts before the end of the year.

The S&P 500 bounced back after three straight sessions of losses. Bond market moves were muted and the dollar weakened. Swap traders continue to expect roughly 40 basis points of cuts by December.

Inflation and Spending Data

The personal consumption expenditures price index excluding food and energy rose 0.2% in August after a 0.3% increase in July. The annual rate held steady at 2.9%, still above the Fed’s target. Personal spending climbed more than expected, underscoring consumer resilience despite persistent inflation.

Analysts noted that the data supports the Fed’s cautious approach. Bret Kenwell of eToro said it “keeps the status quo intact” and leaves the central bank on track to cut rates twice more this year. Morgan Stanley’s Ellen Zentner added that “inflation may not be reversing, but it is not reaccelerating.”

Market Commentary

• Fed Chair Jerome Powell pointed to a cooling labor market as justification for September’s rate cut while stressing the need to remain alert on inflation.

• Richmond Fed President Tom Barkin told Bloomberg Television that risks to employment and inflation are limited.

  

• Chris Low at FHN Financial said the spending numbers reinforced the view that the economy is stronger than expected while inflation remains contained.

Several strategists said consumer strength continues to drive corporate profits. Chris Zaccarelli at Northlight Asset Management noted that “the bull market will continue as long as consumers remain employed and spending.”

Valuations and Risks

The S&P 500 forward price-to-earnings ratio recently touched 22.9, a level exceeded only during the dot-com boom and the 2020 pandemic rally. Some analysts see scope for a near-term pullback in October but believe it would likely refresh the rally rather than end it.

Mark Hackett at Nationwide said equities are showing signs of fatigue after a strong run, but positioning remains cautious rather than complacent. Potential catalysts include fiscal stimulus, further Fed easing, and a weaker dollar.

Political Backdrop

Markets are also watching the government funding stalemate in Congress. A shutdown could delay the September jobs report, although history suggests shutdowns create only short-term volatility.

Corporate Highlights

• Apple Inc. (AAPL) is developing a ChatGPT-like app for iPhone to prepare for a Siri overhaul.

• Electronic Arts Inc. (EA) is in talks to be taken private by Silver Lake and Saudi Arabia’s Public Investment Fund.

• Intel Corp. (INTC) and GlobalFoundries Inc. (GFS) rallied on reports of a U.S. plan to reduce reliance on foreign-made chips.

• Oracle Corp. (ORCL) could benefit from the U.S. valuation of TikTok’s business, which came in lower than expected.

• Meta Platforms Inc. (META) will offer ad-free paid versions of Facebook and Instagram in the UK.

• Boeing Co. (BA) will regain some regulatory authority to certify certain aircraft and resumed union negotiations.

• Uber Technologies Inc. (UBER) expects faster growth in grocery and retail deliveries.

• PG&E Corp. (PCG) was upgraded to investment grade by Fitch.

• Paccar Inc. (PCAR) rose after new tariffs on heavy trucks were announced, benefiting U.S.-based producers.

• TeraWulf Inc. (WULF) is expected to raise about $3 billion to expand data centers with backing from Alphabet Inc. (GOOGL).

• BMW AG (BMW.DE) announced a recall of over 300,000 vehicles for a starter motor defect.

• UBS Group AG (UBS) was given seven years by Swiss regulators to meet higher capital requirements.

Market Moves

• Stocks: S&P 500 +0.6%, Nasdaq 100 +0.4%, Dow +0.7%, Russell 2000 +1%

• Currencies: Dollar Spot Index -0.3%; euro +0.3% to $1.1706; pound +0.5% to $1.3408; yen +0.2% to 149.50 per dollar

• Crypto: Bitcoin little changed at $109,200; Ether +3.5% to $4,023

• Bonds: 10-year Treasury yield +1 bp to 4.18%

• Commodities: WTI crude +0.5% to $65.30; gold +0.4% to $3,766 an ounce

The post Stocks Climb as Inflation Data Supports Fed Cut Outlook appeared first on PRISM MarketView.