S&P 500 marches higher as cooling inflation cements Fed downshift bets

By Yasin Ebrahim 

Investing.com -- The S&P 500 climbed Friday as further signs of easing inflation supported bets that the Federal Reserve will downshift to a slower pace of rate hikes next week.

The S&P 500 rose 0.6%, the Dow Jones Industrial Average gained 0.3%, or 106 points, and the Nasdaq Composite was up 1.2%.

The personal consumption expenditures, or PCE price index rose 0.1% in December, slower than expectations for a 0.2% rise.

Core PCE, which excludes food and energy and is the Fed’s preferred inflation measure, rose 0.3%, in line with expectations, though slowed to 4.4% for the 12 months through December from 4.7% previously.  

“[T]he slowing in core inflation at this point is largely due to improving supply chains, rather than the impact of the Fed’s tightening; that will work through later,” Pantheon Macroeconomics said in a note.  

Following the data, expectations that the Fed will hike rates by 25-basis points rate hike next week are now fully priced in, according to Investing.com’s Fed Rate Monitor Tool.

Treasury yields, however, continued to trade above water amid expectations that Jerome Powell will continue to talk up the prospect of higher for longer rates in the press conference that follows the monetary policy decision.

But as inflation remains “stubbornly elevated, the Committee is likely to reiterate the need for further policy action,” Stifel said in a note.

Consumer discretionary was among the biggest gainers, inspired by a more than 9% rally in Tesla (NASDAQ:TSLA) as investors continued to pile into the EV maker following its better-than-expected quarterly results earlier this week.

Tech, meanwhile, continued to shine brightly, with Alphabet (NASDAQ:GOOGL), Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN) leading to the upside followed Apple Inc (NASDAQ:AAPL) as investors look ahead to more quarterly results from big tech next week.

Chip stocks struggled to join the rally, weighed down by a 7% slump in Intel Corporation (NASDAQ:INTC) after the chipmaker delivered guidance that estimated quarterly revenue to drop by more than a fifth in the first quarter.

Some warned that the bumpy ride around for Intel just as the company is ramping up spending puts its dividend at risk.

“[W]e believe will need a V-shaped recovery in 2H to avoid continued cash burn," Credit Suisse said in a note and cut its price target on the stock to $25. “That unfortunately opens the potential for a dividend cut,” it added.

Elsewhere on the earnings front, American Express Company (NYSE:AXP) reported quarterly results and guidance that topped Wall Street forecasts, sending the stock 12% higher. The credit card company also hiked its dividend by 15%.

Energy stocks sidestepped the broader market rally, falling more than 1% pressured by oil prices and a 4% slide in Chevron (NYSE:CVX) after the oil major reported quarterly earnings that fell short of expectations as rising costs and writedowns weighed.

In other news, Adani Enterprises Ltd (NS:ADEL) fell further into the red, taking losses for the week to more than $50 billion after short-seller Hindenburg Research announced a short position in the stock, accusing the Indian firm of engaging in stock manipulation and accounting fraud.