Dow rises 654 points as traders celebrate inflation numbers

• U.S. stocks staged a sharp recovery on Friday, breaking a three-day losing streak.

• Encouraging inflation data fueled optimism that the Federal Reserve can cut rates in September.

• The rotation into small caps continued, with the Russell 2000 rising more than 1.5%.

U.S. stocks rebounded on Friday, reversing a string of losses that dominated most of this week.

As investor confidence began to waver in the tech stocks’ bull run, rotations out of the mega-cap sector sent the indexes down for three days. On Wednesday the tech-heavy Nasdaq100 had its worst day since 2022, decrease of 3.6%.

That changed on Friday, as encouraging inflation data revived the rally. June’s personal consumption expenditure index was in line with forecasts, increasing investors’ certainty that interest rates could soon fall.

Total PCE rose 0.2% from May and 2.6% year over year.

“We expect next week [Fed Chair Jerome] Powell to set the table for future rate cuts, speaking confidently about the progress made in reducing inflation. Today’s PCE report supports this,” said David Donabedian, chief investment officer of CIBC Private Wealth. “While we don’t think he will use the word ‘imminent’, we do think he will give the impression that a September rate cut is likely. .”

According to the CME FedWatch toolThe market no longer expects the Federal Reserve to keep interest rates stable in September.

Instead, investors pointed to an 87.7% chance of one cut that month. The market is also predicting a high probability that the Fed will cut rates by up to 75 basis points through December.

Here’s where the US indexes stood at 4pm on Friday:

‘The Fed is on track for two cuts this year – one in September and another in December – and as long as the data continues to come in as before (e.g. not too hot and not too cold), they have the luxury of leaving rates unchanged . next week and every other meeting in the near term at a 25 basis point pace,” predicts Chris Zaccarelli, Chief Investment Officer of Independent Advisor Alliance.

While some commentators feel that The Fed should make cuts at its policy meeting next weekConcerns about a meaningful economic slowdown eased on Thursday, thanks to second-quarter GDP data hotter than expected.

Next week, investors will look to the June jobs report, which will provide more clues about economic conditions.

Among Friday’s notable stock movers, medical device company Dexcom fell more than 40% on disappointing expectations. Meanwhile, the rotation into small-cap stocks continued, driving the Russell 2000 up more than 1%.

The story continues

Here’s what else is happening today:

In commodities, bonds and crypto:

• Oil futures fell. West Texas average crude fell 2.02% to $76.71 per barrel. Brent crude oilthe international benchmark, fell 2.08% to $80.66 per barrel.

• Gold rose 0.83% to $2,384.39 per ounce.

• The yield on ten-year government bonds fell by six basis points to 4.19%.

• Bitcoin rose 3.15% to $67,852.

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