US equity indexes experienced a mixed day on midday Friday as most government bond yields saw a decline, attributed to easing inflationary pressures observed in August, along with a revision of consumer sentiment upward. The Dow Jones Industrial Average rose by 0.4% to reach 42,347.6 after hitting a new intraday high of 42,628.32 earlier in the session.
The S&P 500 index gently slid by 0.1%, settling at 5,738.7, while the Nasdaq Composite witnessed a decrease of 0.4%, dropping to 18,121.7. Gains were primarily led by the energy and utilities sectors, with most portfolios reflecting positive movements post-noon. In contrast, technology and consumer discretionary sectors represented the trio of decliners amid the fluctuations.
The personal consumption expenditures price index recorded a 0.1% growth, aligning with expectations and reducing the year-over-year inflation rate to 2.2%, down from July’s 2.5%. Comparatively, the index for the previous month rose by 0.2%. The core PCE, which disregards the more volatile food and energy prices, similarly ascended by 0.1%.
This figure fell below the anticipated 0.2% increase, trailing behind the prior month’s performance of 0.2%. When analyzed on a year-over-year basis, the rate escalated to 2.7% in August from the previous month’s 2.6%. Following the recently released data, the likelihood of a 50 basis point reduction in the Federal Reserve's target rate - lowered to a range of 4.25% to 4.5% - increased to 52.1%, up from the previous day’s 49.3%.
Conversely, the remaining probability at 47.9% indicated expectations for a 25 basis point reduction, suggesting ambiguity in the perspectives of interest-rate traders regarding the magnitude of the anticipated rate cut at the forthcoming monetary policy meeting scheduled for November 7. A report earlier that morning presented a “somewhat mixed” inflation situation, which is expected to amplify the pre-existing divisions among policy officials, as noted by Stifel Research.
While the overall inflation report exhibited further assurance regarding the disinflationary trend—bolstering the Fed's previous decision for a larger 50 basis point cut last week—the increase in the core index after a month of stagnation and the absence of significant improvement in the core CPI and core PPI point towards persisting inflationary risks.
Stifel's Chief Economist, Lindsey Piegza, conveyed these insights in their note. From an economic perspective, the University of Michigan’s consumer sentiment index was adjusted upward to 70.1 for September, surpassing the preliminary estimate of 69 and exceeding Bloomberg’s survey expectation of 69.4, also above last month’s final reading of 67.9.
Respondents indicated expectations for a 2.7% inflation rate over the forthcoming year, slightly lessening from August’s forecast of 2.8%. Meanwhile, the five-year inflation outlook edged up to 3.1% after maintaining at 3% for the previous five months. In the realm of US Treasury yields, most saw declines, with the 10-year yield dropping by 3.8 basis points to 3.75%, and the two-year yield falling by 5.8 basis points to 3.56%.
On the corporate front, Bristol-Myers Squibb secured approval from the US Food and Drug Administration for their Cobenfy drug aimed at treating schizophrenia in adults. In the commodity sector, West Texas Intermediate crude oil saw a 1% hike reaching $68.34 a barrel. However, precious metals had a different trajectory, with gold decreasing by 0.8% to $2,671.90 an ounce, and silver following suit with a 1.5% drop to $31.86..