Wall Street Drifts After Expected Inflation Report

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On Friday, U.S. stocks experienced minor fluctuations following an inflation report that met expectations, leaving investors uncertain about when interest rates might be lowered.

The S&P 500 remained nearly flat during morning trading. As of 10 a.m. Eastern time, the Dow Jones Industrial Average rose by 20 points, or 0.1%, while the Nasdaq composite fell by 0.2%.

Gap saw a significant increase of 20.6%, becoming one of the market’s top performers. The company, which owns Old Navy and Banana Republic, exceeded analysts’ profit and revenue expectations for the latest quarter and raised its forecasts for the year despite economic uncertainties.

Conversely, Dell fell by 18.2%. Although the tech company met profit expectations, its stock had already surged 122% in 2024. Analysts also expressed concerns about Dell’s profit margins.

Trump Media & Technology Group initially gained but later dropped by 5.8% after Donald Trump was convicted on 34 felony charges. The company, which operates the Truth Social platform, had previously warned that a conviction could negatively impact it.

The S&P 500 is on track for its first losing week in six, primarily due to a previous rise in Treasury yields. However, yields eased on Friday after the inflation report indicated that a key inflation measure remained at 2.7% last month, as forecasted, with some underlying trends slightly improving.

Investors welcomed the news, hoping inflation would decrease enough for the Federal Reserve to cut interest rates. The Fed has kept the federal funds rate at its highest level in over 20 years to combat high inflation. However, maintaining high rates for too long risks a recession, potentially leading to job losses and reduced corporate profits.

Wall Street hopes the Fed can manage a precise adjustment of interest rates. Brian Jacobsen, chief economist at Annex Wealth Management, noted, “The challenge for the Fed is whether growth will slow faster than inflation. We’ve quickly moved from strong growth to slower growth, and the final phase of reducing inflation will be more difficult.”

Friday’s government report also showed that consumer spending growth weakened more than expected last month, and income growth slowed. Jeffrey Roach, chief economist for LPL Financial, stated businesses must prepare for an environment where consumers are not spending as freely as last year.

Following the report, the yield on the 10-year Treasury dropped to 4.49% from 4.55% on Thursday. Earlier in the week, it had risen above 4.60% due to concerns about weak demand in Treasury auctions. The two-year Treasury yield, closely linked to Fed action expectations, fell to 4.88% from 4.93% on Thursday.

Few expect the Federal Reserve to cut interest rates at its next meeting in less than two weeks. However, traders are betting on an 83% chance of at least one rate cut by the end of the year, according to CME Group data.

In other market news, retailer Ulta Beauty climbed 1.2% after slightly surpassing profit and revenue forecasts for the latest quarter, although it lowered its full-year sales and earnings forecast. Nordstrom’s stock fluctuated after reporting a worse-than-expected loss for the latest quarter, despite exceeding revenue expectations. It was recently up 4.3%.

MongoDB’s stock plummeted by 25% despite beating profit and revenue forecasts. The company’s profit forecasts for the current quarter and full year fell short of analysts’ expectations.

Internationally, stock markets were mixed. Tokyo’s Nikkei 225 rose by 1.1%, while Hong Kong’s Hang Seng fell by 0.8%.

Featured Image: Freepik @ wirestock

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About the author: Stephanie Bedard-Chateauneuf has over six years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, health stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.