Market Snapshot: U.S. stocks aim for 5-day win streak after PCE inflation reading offers no surprise


U.S. stocks rose Thursday, after the Federal Reserve’s preferred inflation gauge proved largely in line with expectations for July, leaving investors looking ahead to Friday’s August jobs report.

How are stocks trading

  • The Dow Jones Industrial Average DJIA rose 156 points, or 0.5%, to 35,046.
  • The S&P 500 SPX was up 10 points, or 0.2%, at 4,525.
  • The Nasdaq Composite COMP gained 49 points, or 0.4%, to trade at 14,069.

On Wednesday, the Dow, S&P 500 and Nasdaq each booked a fourth straight winning session. That trimmed the S&P 500’s August loss to 1.6%, leaving the large-cap benchmark on track for its first negative month in six, according to Dow Jones Market Data.

What’s driving markets

Data showed the cost of goods and services rose a mild 0.2% in July, in line with the forecast for the personal-consumption expenditures index produced by a poll of economists by The Wall Street Journal. Year-over-year, the measure showed inflation rose 3.3% versus 3% in June.

The core PCE reading, which strips out food and energy prices and is often described as the Fed’s favorite inflation measure, was also in line with expectations, showing a 0.2% monthly rise, while the year-over-year rate ticked up to 4.2% from 4.1%.

“The lack of an inflation surprise to the upside should be cheered by markets because it is unlikely to move the Fed’s bias towards leaving rates unchanged at their next meeting,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a note.

All measures of inflation tracked by the Fed have moved higher on a year-over-year basis in July, said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a note.

“But monthly gains have downshifted for overall and core PCE prices in recent months. The data bear watching for a reversal of progress on inflation although our estimates suggest prices pressures will ease over the remainder of the year,” she wrote.

The S&P 500’s rally to a four-week high has coincided with benchmark Treasury yields BX:TMUBMUSD10Y pulling back from multiyear peaks as traders bet that some weaker jobs data of late will allow the Federal Reserve to stop raising borrowing costs.

“Since softer employment metrics are one of the most critical inputs for inflation normalization, it has led to a significant shift in the near-term outlook for U.S. interest rates and ignited a rally in stocks and other high-risk assets,” said Stephen Innes, managing partner at SPI Asset Management.

In other data, initial jobless claims fell by 4,000 to 228,000 in the week ended Aug. 26, the Labor Department said. It’s the lowest level of claims since the week ended July 29. Economists polled by The Wall Street Journal had estimated new claims would rise 5,000 to 230,000.

The focus is now on Friday’s August nonfarm payrolls report, which will provide more information “as to whether the labor market is actually softening…” said Richard Hunter, head of markets at Interactive Investor.

The U.S. is expected to add 170,000 jobs in August, down from 187,000 in the prior month, based on a poll of economists by The Wall Street Journal. By contrast, the U.S. added an average 287,000 new jobs a month in the first four months of the year.

See: Hiring likely slowed again last month, but watch out for surprises in U.S. August jobs report

“With traders currently assuming an interest rate pause for September, the question remains as to whether the end of the hiking cycle has been reached. Such an outcome would be positive for growth stocks in particular, which has enabled ongoing strength within the megacap technology sector,” Hunter added.

A trio of well-received earnings reports from technology companies Salesforce Inc. Okta Inc. and CrowdStrike Holdings Inc. delivered after Wednesday’s closing bell, were also providing some support to sentiment.

Companies in focus

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