Wall Street’s major indexes closed higher on Friday, recouping some ground lost earlier this week, as investors flocked back to tech megacaps that had triggered broad sell-offs and inflation data boosted optimism that interest rate cuts will soon begin.
The Dow Jones Industrial Average surged as much as 800 points before closing up 654.27 points, or 1.6%, to 40,589.34. The blue-chip index finished in positive territory for the week.
The S&P 500 and Nasdaq each climbed 1% but posted their second consecutive weekly loss.
Industrial conglomerate 3M jumped 23%, 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 snapping three sessions of losses as Nvidia, Intel, Broadcom and Qualcomm rose between 0.7% and 2.7%.
The so-called Magnificent Seven stocks were mixed, with Tesla and Alphabet slipping less than 1%, while Apple, Microsoft, Meta Platforms and Amazon rose 0.2% to 2.7%.
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.
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.
Economically sensitive small-cap stocks rose, with the Russell 2000 jumping 1.7%, its third straight week of gains.
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.
“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 6.3% after raising its annual profit forecast, while oilfield services firm Baker Hughes climbed 5.8% after beating estimates for second-quarter profit.
Medical device maker Dexcom slumped 41% 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.
