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S&P 500 Soars Amid Inflation Data and Rate Hike Hopes

The S&P 500 experienced a surge as the latest U.S. inflation data fueled optimism about a potential pause in monetary tightening by the Federal Reserve.

Traders work on the floor of the New York Stock Exchange
Traders work on the floor of the New York Stock Exchange

Inflation Data Aligns with Expectations

The Nasdaq hit a four-week peak after a report from the Commerce Department indicated that the Personal Consumption Expenditures (PCE) price index, the central bank's preferred measure of inflation, rose by 3.3% annually in July, meeting expectations. When excluding unstable food and energy components, the core PCE price index increased by 4.2% year-on-year, also matching estimates.

High Expectations for Fed's Policy Pause

The CME Group's FedWatch tool revealed that traders' expectations for a pause in rate hikes at the Fed's September policy meeting remained at an 88.5% chance. Additionally, there was a 51% chance that the central bank would keep rates unchanged in November. Jake Dollarhide, CEO of Longbow Asset Management, noted that the market favors the data-dependent approach of the Fed and that the interest rate hikes are yielding positive results.

Anticipation for Non-Farm Payrolls Data

Investors are eagerly awaiting the more comprehensive non-farm payrolls data, scheduled for release on Friday, to gain a clearer understanding of the Fed's probable monetary trajectory. This anticipation came as the yield on 10-year Treasury notes dropped to 4.09%, boosting major growth stocks like Amazon, Meta Platforms, and Tesla by 0.8% to 2.1%.

Salesforce Revenue Forecast Boosts Stock

Salesforce experienced a 3.7% rally following optimistic revenue forecasts from the cloud-based software provider, which is benefiting from price increases and sustained demand. Tesla was the most traded stock in the S&P 500, with shares worth $22 billion exchanged during the session, and its shares increased by 0.8%.

Weekly Jobless Claims Drop

The Labor Department reported that weekly jobless claims for the week ending August 26 fell to 228,000, compared to the estimated 235,000 claims, positively impacting investor sentiment. This decline followed a smaller-than-anticipated growth in private payrolls on Wednesday, indicating a weakening labor market and propelling the S&P 500 to a three-week closing high.

Monthly Declines for S&P 500 and Nasdaq

Despite being on track to record weekly gains, all three major indexes were set to register losses for August. This marks the first monthly decline for the S&P 500 and Nasdaq since February. At the close, the S&P 500 was up 0.20% at 4,524.12 points, the Nasdaq gained 0.47% at 14,085.29 points, and the Dow Jones Industrial Average decreased by 0.10% to 34,856.97 points.

Dollar General and Chinese Stocks Slump

Dollar General shares plummeted over 12% after the discount retailer reduced its annual same-store sales forecast, while rival Dollar Tree's shares declined by 1.9%. Poor manufacturing data from China led to a 2.2% and 1.2% drop in U.S.-listed shares of Chinese companies and Baidu, respectively.

Advancing Stocks Outnumber Falling Ones

Across the U.S. stock market, advancing stocks outnumbered declining ones by a 1.2-to-one ratio. The S&P 500 posted 21 new highs and four new lows, while the Nasdaq recorded 63 new highs and 71 new lows.