‘Rate-cut’ bounce
Stox rebound on hopes for Sept. Fed action
Wall Street bounced back on Friday with the blue-chip Dow leading the charge as some megacap tech and chip stocks recovered from the week’s pummeling, while a largely in-line key inflation reading kept bets of an early rate cut alive.
The personal consumption expenditure index — the Fed’s preferred inflation gauge — rose 2.5% in June compared to the same period last year, the Commerce Department said Friday.
The PCE index increased by 0.1% from May to June — a further sign that inflation was continuing to ease.
In May, PCE rose 2.6% year-over-year while the monthly measure was unchanged.
The latest PCE figures were welcome news on Wall Street.
The Dow Jones Industrial Average surged by more than 650 points, or 1.6%, on Friday while the S&P 500 and the tech-dominant Nasdaq index each gained 1%.
The PCE is used by the Fed as the main baseline to gauge the rate of inflation.
Fed Chair Jerome Powell and central bankers are scheduled to meet next week, with expectations rising that this latest positive data point will lead to a long-awaited cut to the 23-year high interest rate.
“This will likely move the Fed to loosen the purse strings on the money supply come September by making a .25% rate cut,” Ted Jenkin, a financial services adviser based in Atlanta, told The Post.
“The quicker the inflation cake cools from coming out of the oven, the faster the Fed gets to cut the cake of lowering interest rates.”
Bets on a 25-basis-point cut at the Fed’s September meeting held steady at about 88% after the PCE reading, according to CME’s FedWatch. Traders still largely expect two rate cuts by December, LSEG data showed.
Greg Boutle, head of US equity & derivative strategy at BNP Paribas, noted that the many factors at play helped to explain why markets were susceptible to periods of volatility, including this week.
“It’s been a bit challenging for people to read what’s going on because there is (portfolio) positioning, elections, CPI and the Fed, and earnings season, and these things are all pulling in slightly different directions,” he said.