(Bloomberg) -- Stocks rose after an in-line US inflation report did little to alter bets the Federal Reserve will start cutting rates in September.
The S&P 500 headed toward its fifth straight day of gains, the longest winning streak in more than month. Most of its major groups advanced, with financial and energy shares leading the charge. Treasuries saw small moves. The dollar hovered near a four-month low.
The consumer price index reinforced the trend of disinflation and brought a degree of relief to markets still reeling after last week’s meltdown. Combined with a softening job market, the Fed is widely expected to start lowering rates next month, while the size of the cut will likely be determined by incoming data.
“It may not have been as cool as yesterday’s PPI, but today’s as-expected CPI likely will not rock the boat,” said Chris Larkin at E*Trade from Morgan Stanley. “Now the primary question is whether the Fed will cut rates by 25 or 50 basis points next month. If most of the data over the next five weeks points to a slowing economy, the Fed may cut more aggressively.”
At Evercore, Krishna Guha said the July CPI was not perfect, but it was good enough as it was consistent with a tame read on the Fed’s preferred inflation measure. In addition, the central bank has disavowed data-point dependence, and is looking at the wider outlook and balance of risks, with downside risks to employment dominating since the July employment report.
“This is now a labor data-first Fed, not an inflation data-first Fed, and the incoming labor data will determine how aggressively the Fed pulls forward rate cuts,” Guha noted.
The S&P 500 hovered near 5,450. Megacaps were mixed, with Nvidia Corp. up and Alphabet Inc. down. Wall Street’s “fear gauge” - the VIX - continued to subside, dropping below 17. That’s after an unprecedented spike that took the gauge above 65 last week.
Treasury 10-year yields declined two basis points to 3.82%.
“The stress of the market decline is a fading memory,” said Mark Hackett at Nationwide. “Calming macro fears, the return of share repurchases, and stabilizing momentum provide an improved backdrop for equities.”
The latest consumer price report “checked the box” for the Fed to start cutting rates in September, according to TD Securities’ strategists led by Oscar Munoz and Gennadiy Goldberg.
“Today’s CPI report is again unambiguously welcome news for the Federal Reserve,” they said. “As risks have become truly two-sided for the US economy, if not slightly tilted toward downward employment outcomes, we expect the Fed’s upcoming decision to come down to the magnitude of the first rate cut.”
To Chris Zaccarelli at Independent Advisor Alliance, the July CPI print is the ultimate “no news, is good news” because the markets have been on edge and the Fed is looking to cut interest rates — and nothing in this report should deter them from doing so.
“Recent volatility has largely been driven by macro news, and this is a case of ‘dull news is good news’,” said Neil Birrell at Premier Miton Investors. “It also allows the Fed breathing space as they weigh the economy ahead of their next meeting.”
At Principal Asset Management, Seema Shah says the CPI print removes any lingering inflation obstacles that may have been preventing the Fed from starting the rate cutting cycle in September. Yet, the number also suggests limited urgency for a 50 basis-point cut.
“It offers little new information to guide the future decisions of the Fed, aside from potentially supporting a rate cut due to job market concerns,” according to Florian Ielpo at Lombard Odier Investment Managers.
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