Wall Street bounced back on Friday as megacap tech and chip stocks recovered from the week’s pummeling, while a largely in-line key inflation reading kept bets for an early start to interest-rate cuts alive.
The Dow Jones Industrial Average surged 602 points, or 1.5%, to 40,538. The S&P 500 was up 0.9%, and the Nasdaq gained 0.7%.
Industrial conglomerate 3M jumped more than 17%, boosting the Dow, after the company raised the lower end of its annual adjusted profit forecast.
Chip stocks led the recovery in technology stocks, with the Philadelphia SE Semiconductor index on track to snap three sessions of losses as Nvidia, Intel, Broadcom and Qualcomm rose between 1.2% and 2.6%.
The so-called Magnificent Seven stocks were mixed in early trading, with Apple, Tesla and Alphabet slipping between 0.5% and 1.4%, while Microsoft, Meta Platforms and Amazon rose 0.4% to 2%.
The 10-year Treasury yield turned lower after the inflation figures were out.
Data showed the Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation metric, rose 0.1% on a monthly basis in June and 2.5% annually, both as expected, while personal income was lower than expected.
The moderate rise in prices underscored an improving inflation environment, potentially positioning the Fed to start easing policy in September.
“You’ve got a pretty nice (inflation) report here that further emboldens the soft landing narrative,” said Rick Meckler, partner at Cherry Lane Investments.
Economically sensitive small-cap stocks rose, with the Russell 2000 jumping 1.7%, set for its third straight week of gains, if trends hold.
Bets of a 25-basis-point cut by the Fed’s September meeting held steady at around 88% after the data, according to CME’s FedWatch. Traders still largely expect two rate cuts by December, according to LSEG data.
However, the S&P 500 and the Nasdaq were still on track for a second straight week of losses as investors dumped tech stocks in the past few weeks. Disappointing earnings from Alphabet and Tesla sparked a steep sell-off in megacap and artificial-intelligence-linked shares on Wednesday.
“Next week is an even busier week for earnings reports than this week… after a rough week, on a summer Friday, markets have a chance to bounce higher,” Meckler said.
Worries about Wall Street’s growing dependence on a set of high-momentum stocks, whose valuations now appear inflated, have made underperforming sectors like mid- and small-cap stocks seem more attractive now that early rate cuts seem likely.
On the earnings front, Deckers Outdoor jumped 11% after raising its annual profit forecast, while oilfield services firm Baker Hughes climbed 3.4% after beating estimates for second-quarter profit.
Medical device maker Dexcom slumped 40% after cutting its annual revenue forecast.
Of the 206 companies in the S&P 500 that have reported second-quarter earnings till date, 78.6% beat analysts’ expectations, according to LSEG data.