Wall Street is poised for a higher open as investors digest the latest inflation data, which aligns with expectations and bolsters predictions for an imminent Federal Reserve interest rate cut. The Commerce Department's report, released Friday, showed a modest increase in the Personal Consumption Expenditures (PCE) price index, a key gauge closely monitored by the Fed.
The PCE index, the Fed's preferred inflation measure, rose 0.2% in July, matching the Dow Jones consensus estimate. Over the past year, the index increased by 2.5%, slightly below the anticipated 2.6%. Core PCE, which excludes volatile food and energy prices, also saw a 0.2% rise month-over-month, with a 12-month increase of 2.6%, marginally below the 2.7% estimate.
This steady inflation data suggests that price pressures are moderating, which aligns with Federal Reserve Chair Jerome Powell's recent comments indicating that inflation is nearing the central bank's 2% target. The July figures support the Fed's expected shift from aggressive rate hikes to a more balanced approach, focusing on both inflation and labor market conditions.
The report also revealed that personal income rose 0.3% in July, exceeding the 0.2% forecast, while consumer spending increased by 0.5%, meeting expectations. Despite this increase in spending, the personal savings rate fell to 2.9%, the lowest level since June 2022. This indicates that while consumers are spending more, they are saving less, a trend that could impact future economic stability.
Goods prices remained stable, falling by less than 0.1%, while services prices rose by 0.2%. Over the past year, goods prices decreased marginally, whereas services surged by 3.7%. Food prices rose by 1.4%, and energy costs accelerated by 1.9%, reflecting ongoing volatility in these sectors.
The inflation report had a muted impact on market movements. Equity futures pointed to a higher open on Wall Street, with the Dow E-minis up 79 points (0.19%), the S&P 500 E-minis up 25.25 points (0.45%), and the Nasdaq 100 E-minis up 162.5 points (0.84%). Treasury yields also saw a rise, reflecting investor anticipation of a forthcoming rate cut.
The market is pricing in a 100% chance of a rate reduction at the Fed's September meeting, with current expectations leaning towards a 25 basis point cut rather than a more substantial 50 basis point reduction. According to the CME Group's FedWatch Tool, the likelihood of a 25 basis point cut stands at 69.5%, while the probability of a 50 basis point cut is at 30.5%.
In premarket trading, tech giants showed gains with Alphabet and Meta up 0.8% and 0.6% respectively, and Tesla rising 1.2%. This uptick in tech stocks follows a period of volatility, including a notable drop in Nvidia's shares despite positive earnings results.
The Dow is nearing a record high and is set for a monthly gain, following a period of turbulence influenced by concerns over a slowdown in the labor market. Recent positive data, including an upward revision of economic growth, has helped alleviate investor fears.
Several companies reported significant earnings results. Marvell Technology's forecast for the third quarter exceeded expectations, leading to an 11.2% increase in its stock price. Dell Technologies saw a 4.87% rise after raising its revenue and profit forecasts, driven by strong demand for AI-optimized servers. Lululemon Athletica gained 3.86% following a positive second-quarter profit report, while Ulta Beauty's shares fell by 6.2% after it lowered its annual earnings forecast due to reduced demand.
