Wall Street’s main indexes rose on Thursday after higher-than-expected producer prices data reinforced expectations for a 25-basis point rate cut by the Federal Reserve, while Moderna slumped following a downbeat revenue forecast.
The producer price index (PPI) for final demand rose 0.2% in August, compared with estimates for 0.1% growth. The core number, which strips out volatile food and energy prices, rose 0.3%, higher than the 0.2% forecast.
Separately, initial claims for state unemployment benefits stood at 230,000 for the week ended Sept. 7, in line with estimates.
“This week’s data pretty much confirms that we’re not likely to have a hard landing and that we’re in a soft landing. Inflation came down in the consumer and the producer numbers,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
“As long as investors see that interest rate cut and a path forward for interest rate cuts they’re excited about prospects in the stock market and especially the growthier sections,”
“Rate cuts are expected to compress net interest income (NII)… but lower rates are also supposed to help boost spending. A tug of war has begun to see if growth can insulate the NII compression.”
Bank of America, Citigroup and Wells Fargo fell between 1.3% and 2%. Morgan Stanley dipped 0.5%, while JPMorgan Chase was largely flat.
The comments overshadowed concessions made by the Federal Reserve, which has said it will water down a highly contested plan to raise big banks’ capital.
A string of weakening employment and economic growth data over the past few weeks had fueled some bets on a larger-than-usual 50-bps interest rate cut by the Fed, but these bets had faded after Wednesday’s inflation report.
While on Thursday the bets fluctuated, traders were still betting on a 69% chance the U.S. central bank cuts rates by just 25 bps when it meets on Sept. 17-18, CME’s FedWatch Tool showed. It would be the first rate cut since March 2020.
According to preliminary data, the S&P 500 gained 42.70 points, or 0.77%, to end at 5,596.83 points, while the Nasdaq Composite gained 175.63 points, or 1.01%, to 17,571.16. The Dow Jones Industrial Average rose 243.64 points, or 0.60%, to 41,105.35.
The more economically sensitive small-cap Russell 2000 was outperforming during the session.
“There’s probably some bargain hunting. Small caps is an area that’s lagged all year and they’ll tend to be rate sensitive so if rates are coming down that might have a decent impact,” said Chuck Carlson, CEO of Horizon Investment Services in Hammond, Indiana.
Meanwhile, Moderna’s stock fell after the vaccine maker forecast sales of $2.5 billion to $3.5 billion next year, below analysts’ estimates.
Kroger shares rallied after the supermarket chain beat second-quarter estimates and raised the lower end of its annual sales forecast.
Shares in Warner Bros Discovery and Charter Communications gained after they announced that Charter would provide an ad-supported version of Warner’s streaming services Max and Discovery+.
Shares of gold miners jumped as spot gold hit a record high, with the Arca Gold BUGS index rising.
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