Dow, S&P, surge as tech stocks advance, PCE data stoke rate-cut expectations

Major stock market indexes finished sharply higher Friday, as the Federal Reserve’s preferred inflation measure supported expectations for policymakers to jumpstart rate cuts this year, and as tech stocks clawed back a portion of their losses during the week.

The Dow Jones Industrial Average (DJI) climbed +1.6%, up more than 650 points, led by soaring shares of 3M (MMM). The S&P 500 (SP500) rose +1.1% and the Nasdaq Composite (COMP:IND) picked up +1%, with those two indexes rising after three straight losses.

The S&P 500 (XLK) rose +1% and all 11 S&P 500 sectors ended in the green. Friday’s gains came as investors looked ahead to next week’s Federal Open Market Committee meeting. Friday’s June core PCE report showed prices rose 0.2% M/M, in line with expectations. Headline PCE rose +0.1% M/M. The report also showed personal income and spending growth slowing M/M.

Investors were pricing in expectations for the Fed to start its rate-easing cycle in September.

“Today’s PCE report should give the Fed more confidence as inflation inches toward the 2% target. The rates market now fully expects three cuts before the year-end, offering much-needed relief for equities,” Yimin Xu, part of investing group Cestrian Capital Research, told Seeking Alpha. “Today’s stock market bounce will likely continue next week, as the market is seasonally firmer in the final week of July.”

The Dow cemented a fourth straight weekly advance, while the S&P 500 (SP500) and the Nasdaq Composite (COMP:IND) slumped for a second consecutive week.

The S&P 500 and the Nasdaq on Wednesday logged their sharpest one-day losses since 2022 as investors showed disappointment in quarterly updates from Tesla (TSLA) and Alphabet (GOOGL) (GOOG), part of the Magnificent 7 group of mega-cap tech companies. Alphabet (GOOG)(GOOGL) beat top- and bottom-line expectations but revenue from YouTube ads fell slightly short of consensus estimates.

“Market pullbacks are part of a healthy bull market. The AI investment theme is just beginning to play out. Large cap valuations became high relative to the rest of the market and a readjustment is all good,” Ross Gerber, CEO and president of wealth and investment firm Gerber Kawasaki, said in a post on X (formerly Twitter) on Friday.

In a separate economic update, the University of Michigan Consumer Sentiment Index fell to 66.4 in July from 68.2 in June. The final July print, however, came in slightly better than the mid-month reading of 66.0.

The 10-year Treasury yield (US10Y) fell 6 basis points to 4.19%. The 2-year yield (US2Y) was down 1 basis point to 4.38%. See how Treasury yields have done across the curve at the Seeking Alpha bond page.

Among individual stocks, 3M (MMM) charged up +23% after beating Q2 adjusted earnings estimates and raising the lower end of its full-year earnings guidance.

DexCom (DXCM) plunged -41% with investors alarmed by the company’s lower-than-expected Q3 revenue outlook.