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The U.S Stock Market is on a Five-day Winning Streak After a Flat Pce Inflation Reading

August 31, 2023
minute read

The U.S. equity market experienced upward movement on Thursday, prompted by the Federal Reserve's favored inflation indicator aligning closely with expectations for July. Investors are now focusing on the upcoming August jobs report, scheduled for release on Friday.

As of the latest trading data:

  • The Dow Jones Industrial Average (DJIA) ascended by 156 points, equivalent to a 0.5% gain, reaching 35,046.
  • The S&P 500 (SPX) demonstrated a rise of 10 points, representing a 0.2% increase, settling at 4,525.
  • The Nasdaq Composite (COMP) exhibited a gain of 49 points, indicating a 0.4% rise, with a trading value of 14,069.

In the previous session, the Dow, S&P 500, and Nasdaq all achieved a fourth consecutive positive session. Consequently, the S&P 500's loss for the month of August has been reduced to 1.6%, positioning the benchmark index for its initial monthly decline in the past six months, according to Dow Jones Market Data.

Market Factors:The latest data revealed that the costs of goods and services saw a modest increase of 0.2% in July, consistent with forecasts for the personal-consumption expenditures index from an economist poll conducted by The Wall Street Journal. The year-over-year analysis indicated a 3.3% rise in inflation, compared to the 3% recorded in June.

The core reading of the PCE, a metric favored by the Federal Reserve for gauging inflation as it excludes food and energy prices, also matched expectations, showcasing a monthly increase of 0.2%. The year-over-year rate slightly rose from 4.1% to 4.2%.

Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, commented that the absence of an inflation surprise aligning with an upward trend should be perceived positively by the markets. It is unlikely to influence the Federal Reserve's inclination towards maintaining unchanged interest rates at their forthcoming meeting.

Rubeela Farooqi, Chief U.S. Economist at High Frequency Economics, noted that all the inflation metrics tracked by the Fed recorded year-over-year increases in July. Nevertheless, the monthly gains have decelerated for overall and core PCE prices in recent months. While the data should be monitored for any potential reversal in inflation progress, estimates indicate that price pressures may ease in the latter part of the year.

The S&P 500's recent ascent to a four-week peak has coincided with the retreat of benchmark Treasury yields from multiyear highs. This shift is attributed to traders' anticipation that recent weaker employment data may prompt the Federal Reserve to halt its rate hikes.

Stephen Innes, Managing Partner at SPI Asset Management, emphasized that since employment metrics significantly impact inflation normalization, the change in the near-term outlook for U.S. interest rates has triggered a rally in stocks and other higher-risk assets.

In other notable data, initial jobless claims declined by 4,000 to 228,000 for the week ending August 26, marking the lowest level since the week ending July 29. This performance exceeded economists' forecasts, as a poll by The Wall Street Journal had estimated a rise of 5,000 to 230,000 in new claims.

The focus now turns to Friday's nonfarm payrolls report for August, which will offer more insight into the potential softening of the labor market. The consensus among economists polled by The Wall Street Journal is that the U.S. is expected to add 170,000 jobs in August, down from 187,000 in the previous month. This contrasts with the first four months of the year, during which an average of 287,000 new jobs were added each month.

Richard Hunter, Head of Markets at Interactive Investor, highlighted the question of whether the end of the rate-hiking cycle has been reached, given the assumption of a rate pause for September by traders. Such an outcome could be favorable for growth stocks, particularly within the megacap technology sector.

The positive sentiment was further buoyed by well-received earnings reports from technology companies Salesforce Inc., Okta Inc., and CrowdStrike Holdings Inc., all released after the market closed on Wednesday. These reports contributed to supporting market sentiment.

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Adan Harris
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Adan Harris
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