On a lively Friday afternoon, U.S. equity indexes witnessed a robust surge, demonstrating a remarkable rebound following the release of encouraging inflation indicators. The moderation in inflation, closely monitored by economists, has had a significant impact on government bond yields, which trended lower in response to the positive economic signals and strong quarterly earnings reports. The Nasdaq Composite climbed an impressive 1.4%, reaching a notable 17,425.4, while the S&P 500 also reaped the benefits of the favorable data, increasing by 1.5% to close at 5,479.8.
The Dow Jones Industrial Average marked a staggering 2% rise, finishing the trading session at 40,721.9. Notably, all market sectors advanced during the intraday session, with industrials, materials, and technology stocks leading the charge and contributing significantly to the overall gains. As per the CME Group's FedWatch Tool, by midday Friday, there was a striking 95% probability that the Federal Open Market Committee would implement a 25 basis point cut to interest rates in September, fueled by the ongoing decline in inflation rates.
This reprieve from inflation pressures, particularly notable over the last two months, has solidified market expectations for a proactive approach by the Federal Reserve. In June, the annual headline personal consumption expenditures price index (PCE) eased to 2.5%, down from 2.6% in May, revealing a slight divergence from Wall Street’s expectations which had set the forecast at 2.4%.
The Fed’s favored core measure, designed to strip away the volatility from food and energy prices, remained unchanged at 2.6%, aligning closely with the anticipated 2.5% consensus. The inflation rate grew by 0.1% sequentially in June following a flat result in May, and the core measure advanced by 0.2% from a previous 0.1%.
Both metrics reflected market expectations and the current economic narrative. Investigating this trend further, Lindsey Piegza, Stifel Chief Economist, remarked in a detailed note that “Inflation continued to cool in June after an earlier reprieve in May, perpetuating the market's expectations for a September rate cut.” Piegza further emphasized that, “Coupled with the Fed's assessment of cooling labor market conditions, two back-to-back months of improving disinflation may prove to be sufficient justification for [Fed Chair] Jerome Powell to offer the reprieve investors have been desperately awaiting.” In conjunction with the rise in equities, Treasury yields also showed a downward trend.
The yield on the 10-year Treasury declined by five basis points to 4.21%, while the two-year note retreated by 5.4 basis points, settling at 4.39%. In the commodities sphere, precious metals experienced gains as well, with gold increasing by 1.4% to $2,434.20 per ounce, and silver seeing a modest rise of 0.4% to $28.09. Examining company news, 3M reported an uplifting adjustment to the lower end of its full-year adjusted earnings outlook after surpassing market estimates with its Q2 results.
Shares of the company soared an impressive 19.3% intraday, making it the top performer across both the S&P 500 and the Dow Jones Industrial Average. Meanwhile, BofA Securities upgraded Mohawk Industries to 'buy' from 'underperform,' with an adjusted price target of $177, up from a previous $120. The company stunned analysts with a surprise Q2 earnings increase and provided an optimistic outlook for Q3, resulting in a 19% spike in share prices intraday—the second-best performance on the S&P 500. In stark contrast, shares of DexCom plummeted by 41.6% intraday, marking the steepest decline on both the S&P 500 and the Nasdaq as the company revised its 2024 revenue guidance downward.
In the energy markets, West Texas Intermediate crude oil also took a hit, sliding 1.1% to $77.44 a barrel. The recent market fluctuations underscore the complex interplay between inflation rates, Federal Reserve monetary policy, and corporate earnings, signaling a critical time for investors to stay informed and prepared for potential changes in the economic landscape..