U.S. stocks on Friday powered to new intraday highs early in the final trading session of H1 2024, after a core measure of a key inflation gauge logged its lowest Y/Y increase in over three years.
Shortly after the opening bell, the benchmark S&P 500 (SP500) notched its 32nd all-time high of the year, and is on track to advance more than 15% for H1. At the same time, the tech-heavy Nasdaq Composite (COMP:IND) surged past the historic 18,000 mark for the first time ever.
Both averages had pulled back in midday trade. The S&P (SP500) was last up 0.08% to 5,487.14 points, while the Nasdaq (COMP:IND) was higher by 0.04% to 17,865.35 points. The blue-chip Dow (DJI) had climbed 0.03% to 39,177.20 points.
Of the 11 S&P sectors, seven were in the green.
Before the start of regular trading, the U.S. Bureau of Economic Analysis published the personal income and outlays report for May. The data included a reading on the core personal consumption expenditures (PCE) price index – widely seen as the Federal Reserve’s preferred inflation gauge.
The core figure, which excludes food and energy, inched up 0.1% M/M in May, matching the consensus and decelerating from April’s 0.3% rise. That was its lowest print since November last year. On an annual basis, the core PCE price index increased 2.6% Y/Y in May, in-line with estimates and slowing down from the prior month’s +2.8% number. The Fed’s inflation target is 2%.
“Today’s personal income and spending report is a policymaker’s dream. Consumer income remains strong, spending is more modest and most importantly core PCE inflation notched its smallest annual gain in more than three years,” Wells Fargo’s Tim Quinlan said.
According to the CME FedWatch tool, the market’s expectations for a 25 basis point interest rate cut in September held steady at nearly 60% after the PCE data.
“Today’s read on inflation was stellar. I don’t generally look at the 3rd significant digit, but…The core consumer expenditure deflator increased .083% in the month and 2.573% over the past year. The fillip in inflation at the start of the year was due to measurement problems. Everything suggests that inflation is headed back to the Fed’s target. Time to cut interest rates,” Mark Zandi, chief economist at Moody’s Analytics, said on X (formerly Twitter).
U.S. Treasury yields initially fell as traders snapped up bonds after the PCE data. But the buying was short-lived and yields reversed course soon after, especially longer-end maturities. The 30-year yield (US30Y) was last up 7 basis points to 4.49%, while the 10-year yield (US10Y) was up 5 basis points to 4.34%. The shorter-end, more rate-sensitive 2-year yield (US2Y) was up marginally to 4.72%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
Another welcome development on the inflation front was the University of Michigan’s monthly survey of consumers. Final results for June showed that consumers’ year-ahead inflation expectations fell to 3% from 3.3% in May.
Countering some of the economic data-driven positive sentiment on Friday was a more than 19% plunge in Nike (NKE). The world’s largest shoemaker and a barometer for consumer trends attracted a bevy of analyst rating downgrades after it warned that current quarter sales would decline 10%.
Market participants also digested the aftermath of the first U.S. presidential election debate held late on Thursday. Hosted by CNN, incumbent President Joe Biden and former leader Donald Trump sparred over a number of key topics, including inflation and tariffs.
According to a CNN flash poll of registered debate watchers conducted by research firm SSRS, 67% said Trump turned in a better performance than Biden.
