U.S. stocks on Friday marched higher, helped by a rebound in megacap technology names and more encouraging developments on the inflation front.
A rotation out of heavyweights such as the “Magnificent 7” club weighed on the benchmark S&P 500 (SP500) and the Nasdaq Composite (COMP:IND) in the previous session, but both indexes have bounced back strongly. The former was last up 0.74% to 5,626.02 points in midday trade, while the latter was higher by 0.83% to 18,435.20 points.
The blue-chip Dow (DJI) reclaimed the 40,000 points mark for the first time since May 20 and hit a new intraday high. It had last gained 0.75% to 40,052.41.
All 11 S&P sectors were in the green, except Communication Services.
For the week, the S&P (SP500) had added 1.06%, the Nasdaq (COMP:IND) 0.45%, and the Dow (DJI) 1.72%.
Before the opening bell, the U.S. Bureau of Labor Statistics said the producer price index (PPI) for final demand rose 0.2% M/M in June, a tad higher than the expected increase of 0.1% and accelerating from May’s unchanged reading.
On the other hand, the core PPI – which excludes food, energy and trade – was flat M/M in June, compared to a consensus for a climb of 0.2% and a +0.2% figure for May.
Following on from Thursday’s softer-than-expected consumer price index report, the PPI data has led to economists expecting a marginal increase in the personal consumption expenditures (PCE) price index, which is widely seen as the Federal Reserve’s preferred inflation gauge.
“After the PPI, looks like Q2 core PCE rose by an average of 0.17% per month, which implies steady-state 2.1% y/y if sustained. Lower is more likely. Job done. Ease. Now,” Pantheon Macro’s Ian Shepherdson said on X (formerly Twitter), referring to the Fed cutting interest rates.
Another indicator on Friday’s economic calendar painted a favorable picture for inflation. According to preliminary results from the University of Michigan’s survey of consumers, year-ahead inflation expectations in July fell for the second consecutive month, reaching 2.9%.
Meanwhile, UMich’s gauge for consumer sentiment edged slightly lower to 66.0 from 68.2 in June.
“Weaker U.S. consumer sentiment and lower inflationary expectations – that is the message from today’s University of Michigan data … the just-released numbers are consistent with the broader point that, in a Type I/Type II framing, the monetary policy risk is that the Federal Reserve will remain too tight for too long rather than cut too early,” Mohamed El-Erian, chief economic advisor at Allianz, said on X.
Looking at the fixed-income markets, U.S. Treasury yields extended their fall from the previous session as traders continued to buy bonds. The longer-end 30-year (US30Y) and 10-year yields (US10Y) were both down 1 basis point each to 4.41% and 4.20%, respectively. The shorter-end, more rate-sensitive 2-year yield (US2Y) was down 4 basis points to 4.48%.
See live data on how Treasury yields are doing across the curve on the Seeking Alpha bond page.
Turning to one of the main highlights of the day, the second quarter earnings season was unofficially kicked off as major U.S. banks reported their results.
JPMorgan (JPM), Wells Fargo (WFC) and Citigroup (C) saw a largely negative reaction from investors, as their reports failed to ignite much excitement. With interest rate cuts from the Fed potentially coming soon, lenders could see a direct impact on their profitability as lower rates can eat away at net interest margins.
Among other active stocks, AT&T (T) was in the spotlight after the U.S. telecom giant disclosed a hack of customer data that included records of calls and texts over a six-month period in 2022.