The S&P 500 rose 0.8 per cent and topped its prior all-time high, which was set earlier this month. The Dow Jones Industrial Average rallied 472 points, or 1 per cent, and the Nasdaq composite climbed 1.1 per cent. Both also set records.
The data on inflation is encouraging because it could mean less pain for lower- and middle-income households struggling with still-high increases in prices every month. Even more importantly for Wall Street, it could also clear the way for the Federal Reserve to keep cutting interest rates in hopes of giving a boost to the slowing job market.
The Fed just cut its main interest rate last month for the first time this year, but it’s been hesitant to promise more relief because lower rates can make inflation worse, beyond goosing the economy and prices for investments. Following the inflation report, traders continue to bet on a near certainty that the Fed will cut rates at its next two meetings, including one next week.
“Right now, Fed officials are more concerned about the labour market than about inflation,” according to Brian Jacobsen, chief economist at Annex Wealth Management. “Without any evidence to the contrary, there’s nothing to really change their minds about cutting.”
Stocks had been shaky in recent weeks following a tremendous rally of 35 per cent for the S&P 500 from a low in April. Criticism climbed that stocks became too expensive after their prices rose much faster than corporate profits. Worries also flared about potentially bad loans that banks made following a period of calm that may have encouraged too much risk-taking. And President Donald Trump rattled markets after threatening much higher tariffs on China, the world’s second-largest economy.
But stocks have rebounded each time, only to push higher. Banks have characterised the industry’s hiccups as just a collection of one-offs, while Trump is set to meet China’s leader, Xi Jinping, at a conference next week.
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And most big US companies are reporting stronger profits for the latest quarter than analysts expected, as is usually the case.
Ford Motor revved 12.2 per cent higher to lead all companies in the S&P 500 after the automaker topped analysts’ expectations for profit in the latest quarter. The company said its business is running at the high end of its forecasted range for financial performance this year that it set out in February.
Google’s parent company climbed 2.7 per cent after Anthropic announced an expansion worth tens of billions of dollars, through which it would increase usage of Google cloud technologies for its AI chatbot, Claude. Given its massive size, Alphabet was one of the strongest forces lifting the S&P 500 index, along with other AI beneficiaries like Nvidia.
In the bond market, Treasury yields held relatively steady, as the inflation solidified already high expectations for coming cuts to rates by the Fed. The yield on the 10-year Treasury edged down to 3.99 per cent from 4.01 per cent late Thursday.
A report from the University of Michigan on Friday also said expectations for inflation among US consumers remains mixed. Such numbers are important because expectations for high inflation can encourage behaviour that pushes inflation even higher, creating a vicious cycle.
With AP
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