Dow leads Wall St revival after inflation data; tech stocks recoup losses

NEW YORK: Wall Street bounced back on Friday with the blue-chip Dow leading the charge as some megacap tech and chip stocks recovered from the week’s pummeling, while a largely in-line key inflation reading kept bets of an early rate cut alive.

Industrial conglomerate 3M jumped 19%, boosting the Dow to a one-month high after it raised the lower end of its annual adjusted profit forecast.

The Philadelphia SE Semiconductor index was on track to snap a three-day losing streak as Nvidia, Marvell Technology, Broadcom, Texas Instruments and Qualcomm rose more than 1% each.

The Magnificent Seven stocks were mixed, with Microsoft and Meta Platforms gaining more than 1%, while Tesla and Alphabet shed 0.7% and 2%, respectively.

The 10-year Treasury yield turned lower after the inflation data. Economically sensitive small-cap stocks rose, with the Russell 2000 jumping 1%, set for its third straight weekly gain in two months and its best three-week run since August 2022.

The moderate rise in US prices underlined an improving inflation environment, potentially positioning the Federal Reserve to start easing policy in September. The central bank’s July monetary policy decision is due next week.

“A cut next Wednesday is unlikely, but the Fed can at least acknowledge that they’re more confident in the disinflationary trends,” said Brian Jacobsen, chief economist at Annex Wealth Management. “The markets should warmly greet that.”

Bets of a 25-basis-point cut by the Fed’s September meeting held steady at about 88% after the PCE reading, according to CME’s FedWatch. Traders still largely expect two rate cuts by December, according to LSEG data. At 11:46 a.m. ET, the Dow Jones Industrial Average was up 652.82 points, or 1.63%, at 40,587.89, the S&P 500 was up 57.19 points, or 1.06%, at 5,456.41, and the Nasdaq Composite was up 158.56 points, or 0.92%, at 17,340.28.

However, the S&P 500 and the Nasdaq remained on track for a second straight week of losses after investors dumped tech stocks over the past few weeks. Disappointing earnings from Alphabet and Tesla sparked a steep sell-off in megacap and artificial-intelligence-linked shares on Wednesday.

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. Industrials and Materials led gains across the S&P 500 sector indexes. Energy bucked the trend and fell tracking lower oil prices.

In earnings, Deckers Outdoor jumped 8.0% after it raised its annual profit forecast, while oilfield services firm Baker Hughes climbed 3.3% after beating estimates for second-quarter profit.

Medical device maker Dexcom slumped 42.0% 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. Advancing issues outnumbered decliners by a 3.46-to-1 ratio on the NYSE, and by a 2.05-to-1 ratio on the Nasdaq. The S&P index recorded six new 52-week highs, while the Nasdaq recorded 161 new highs and 39 new lows.