July 26, 2024

The U.S. stock market experienced a surge on Friday, fueled by positive inflation data that raised hopes of potential interest rate cuts by the Federal Reserve. The S&P500 closed up by 1.11% at 5,459.10, the Dow Jones Industrial Average rose by 654 points, 1.64% closing at 40,589.34, and the Nasdaq climbed 1.03% to 17,357.88.

The rally was supported by the latest figures from the Commerce Department, indicating that U.S. consumer prices in June were 2.5% higher compared to a year earlier, a slight decrease from May’s inflation rate of 2.6%. This data, measured by the personal consumption expenditures (PCE) index—a key metric monitored by the Federal Reserve—suggests a gradual moderation in inflation.

Traders reacted to the deceleration in inflation with confidence, with CME Group data indicating a 100% probability of the Fed initiating interest rate cuts in September. The Fed’s federal funds rate, at its highest level in over two decades, has been a significant concern for both equity and bond markets.

Chief economist Brian Jacobsen of Annex Wealth Management emphasized the significance of these developments, highlighting slow income growth, moderating spending growth, deflation in goods prices, and tame service price inflation as factors that should give the Fed confidence to cut interest rates.

The bond market also responded positively, with the yield on the 10-year Treasury dropping to 4.19% from 4.25% the previous day, and significantly lower than the 4.70% recorded in April. This shift in the bond market, often considered a predictor of future economic conditions, further boosted stock prices.

The Dow Jones led the gains, significantly boosted by a 20% surge in 3M’s shares following a positive profit forecast upgrade. This strong performance from a major industrial company contributed to overall market optimism. Alongside tech stocks, small-cap stocks and semiconductor companies also saw gains, indicating a broad-based rally across various sectors.