Stocks Up as This Week’s Rally Tops $1.3 Trillion: Markets Wrap

(Bloomberg) — A rally that’s already added over $1.3 trillion to the S&P 500 this week powered ahead as the latest economic data did little to alter bets on a series of Federal Reserve rate cuts.

Every major group in the US equity benchmark rose, with both mega and small caps outpacing the broader market. In late hours, Adobe Inc. tumbled on a disappointing revenue outlook. Treasuries saw small moves. Swap contracts priced in slightly higher odds of a half-point Fed reduction next week after a Wall Street Journal report said policymakers were considering whether to cut by 25 or 50 basis points.

The producer price index picked up slightly in August after the previous month’s numbers were revised lower, and categories that feed into the Fed’s preferred inflation gauge were muted. Separate data showed jobless claims ticked up.

“Recognizing that the Fed can surprise ‘dovish’ right now, whereas it cannot surprise ‘hawkish’, we think PPI sustains a lingering possibility of a starter 50, which would take less risk with the soft landing,” said Krishna Guha at Evercore.

The S&P 500 rose 0.8%. The Nasdaq 100 added 1%. The Dow Jones Industrial Average gained 0.6%. A gauge of the “Magnificent Seven” megacaps climbed 1.4%. The Russell 2000 advanced 1.2%. Nvidia Corp. paced gains in chipmakers, though Micron Technology Inc. sank on a downgrade. Wells Fargo & Co. slid on news the US is seeking fixes to money-laundering controls.

Treasury 10-year yields advanced three basis points to 3.68%. German bunds snapped a seven-day winning streak after European Central Bank President Christine Lagarde said rates will be sufficiently restrictive in the wake of an expected quarter-point interest rate cut to 3.5%. Oil climbed. Gold hit an all-time high.

The wholesale inflation data followed the more closely watched consumer price index, which showed underlying inflation accelerated in August. Yet policymakers have made it clear that they’re currently highly focused on softness in the labor market, which is more likely to drive policy discussions in the months ahead. 

“With PPI basically repeating yesterday’s CPI reading and jobless claims in line with expectations, the decks have been cleared for the Fed to kick off a rate-cutting cycle,” said Chris Larkin at E*Trade from Morgan Stanley. “The markets are anticipating an initial 25 basis-point cut, but the discussion will soon turn to how far and fast the Fed is likely to trim rates over time.

Eric Johnston at Cantor Fitzgerald says that going into the Fed decision, there’s a “very good” set-up for small caps. That’s the group considered to have the most-positive leverage to a policy easing cycle, he noted, citing the fact that the Russell 2000 has largely underperformed the S&P 500 in the past few weeks.

“The consensus is that the Fed will cut 25 bps, but there is of course a chance that they end up cutting 50 bps,” Johnston said. Small caps “would get a significant rally if it was 50 and still rally with a very dovish 25,” he noted.

Corporate Highlights:

• Verizon Communications Inc. will take a pre-tax charge of as much as $1.9 billion in the third quarter tied to 4,800 planned job cuts.
• Delta Air Lines Inc. said profit this year could reach the high end of its prior guidance – if investors ignore the financial blow from this summer’s system meltdown.
• Alaska Air Group Inc. boosted its outlook for third-quarter profit on strong summer demand and lower-than-expected fuel costs.
• American Airlines Group Inc. flight attendants approved a contract that will immediately raise wages as much as 20% and increase pay and benefits by $4.2 billion over the deal’s five-year term.
• Kroger Co. lifted its full-year sales guidance as the grocery-store operator benefits from consumers prioritizing spending on groceries and other essentials.

Key events this week:

• Eurozone industrial production, Friday
• Japan industrial production, Friday
• U. Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.8% as of 4 p.m. New York time
• The Nasdaq 100 rose 1%
• The Dow Jones Industrial Average rose 0.6%
• The MSCI World Index rose 1%
• Bloomberg Magnificent 7 Total Return Index rose 1.4%
• The Russell 2000 Index rose 1.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.4%
• The euro rose 0.5% to $1.1069
• The British pound rose 0.6% to $1.3117
• The Japanese yen rose 0.3% to 141.88 per dollar

Cryptocurrencies

• Bitcoin rose 1.5% to $58,350.53
• Ether rose 0.5% to $2,360.07

Bonds

• The yield on 10-year Treasuries advanced three basis points to 3.68%
• Germany’s 10-year yield advanced four basis points to 2.15%
• Britain’s 10-year yield advanced two basis points to 3.78%

Commodities

• West Texas Intermediate crude rose 2.9% to $69.23 a barrel
• Spot gold rose 1.8% to $2,558.15 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Lu Wang.

©2024 Bloomberg L.P.