The stock market was gaining Friday, after the Federal Reserve’s preferred inflation gauge cooled a bit. That extends a recent rally that has been built on the hope that the Fed won’t get any more aggressive on lifting interest rates.
In afternoon trading, the
Dow Jones Industrial Average
rose 334 points, or 1%. The
added 1.7%, with the
The personal consumption expenditure index rose 6.3% year over year in April, down from 6.6% in March, while core PCE inflation, which does not account for food and energy, rose 4.9%, in line with estimates and down from a previous reading of 5.2%.
“The drop in inflation numbers this month effectively moves the “Fed Put” back on the table, for now, reducing systematic market risk,” wrote Louis Navellier, founder of Navellier & Associates. The “Fed put” refers to a point at which the Fed sees the economy and financial market as weakening so much that it will refrain from tightening monetary policy so much that markets fall apart.
That’s helping the market’s recent rally to march on. Markets had been hoping that data points like reduced housing demand and lower sales of discretionary products at Target (ticker: TGT) are pointing to a faster decline in inflation. For now, the inflation data and other economic and corporate developments are validating the narrative that the Fed will slow the pace of rate hikes beyond the next few meetings.
Friday’s gain comes after a multi-day bounce for the major indexes, with the S&P 500 up 6.5% from its lowest intraday level of the year last Friday coming into today. The rally that began at the end of last week extended on Wednesday when the Federal Reserve, while acknowledging that it will lift interest rates further in the next couple of meetings, implied that it may slow down the pace of rate hikes if the economy continues to slow down.
Barring a steep selloff in stocks, the Dow is set to snap an eight-week losing streak—the index’s longest since 1932—with the S&P and Nasdaq on track to break seven-week losing streaks, their worst since 2001.
Contributing to the calmness in the equity market is calmness in the bond market. The 2-year Treasury yield, which attempts to forecast the level of the benchmark lending rate a couple years from the present, was at 2.48%, around its level for the past few days and below its pandemic-era peak of 2.76% hit in early May.
Overall, the “less-aggressive outlook for the Fed amid the prospects of a potential ‘pause’ in policy tightening after the summer hikes, could serve as a catalyst for such a near-term bottom [in stocks] forming,” wrote Tom Essaye, founder of Sevens Report Research.
In other data, positive signs for the consumer emerged. Personal income rose 0.4% in April from the month prior, faster than the month-over-month move in inflation. That means that consumers saw slightly increased buying power in the month. While that dynamic indicates that demand can remain strong for the moment, the Fed will focus on the actual inflation data.
Still, Friday’s inflation result is only one data point. Price increases have a long way to go on the way down before Wall Street claims victory. “Yes inflation is finally slowing, but it’s a little early for high fives,” wrote Bill Adams, chief economist for Comerica Bank.
Overseas, the pan-European
climbed 1.4%, and Tokyo’s
Here are some stocks on the move Friday:
(DIDI) stock rallied 9.7%. FAW—one of China’s largest automotive firms—has reached out to executives at the embattled Chinese ride-hailing company about becoming a major shareholder and helping it solve data security issues, Bloomberg reported.
(MRVL) stock rose 4.7% after the chip group reported solid earnings late Thursday, including guidance slightly above Wall Street’s expectations. The company reported adjusted earnings per share of 52 cents for the quarter ending in April, above consensus estimates among analysts of 51 cents.
(GPS) stock gained 2.1% after the company reported a loss of 44 cents a share on a GAAP basis. Sales were $3.47 billion, above expectations for $3.44 billion, but down year over year as Old Navy sales dropped double digits in percentage terms.