Inflation Eases, Fueling Expectations for Aggressive Fed Rate Cut

Stocks traded mixed on Friday as investors embraced an inflation report seen as crucial to the Federal Reserve's next decision on interest rate cuts. The latest encouraging reading of the Fed's preferred inflation gauge has shifted market forecasts for the likelihood of another 50-basis point rate cut.

Inflation Slowdown Boosts Bets on Jumbo Fed Rate Cut

Cooling Prices Spur Expectations for Accelerated Policy Easing

The August reading of the Personal Consumption Expenditures (PCE) index, the inflation metric favored by the Fed, showed continued cooling in price pressures. The "core" PCE index, which is most closely watched by policymakers, rose 0.1% month over month, lower than Wall Street forecasts. This latest data point has fueled growing market conviction that the Federal Reserve can engineer a "soft landing" as it embarks on a rate-cutting campaign.The PCE reading appeared to goose up bets on another jumbo-sized rate cut from the Fed next month. More than half of traders — around 52% — now expect a 50 basis point cut, up from 50% a week ago. If inflation continues to show signs of easing, that will likely pressure Fed officials to accelerate their plans to bring interest rates down, since elevated rates threaten the labor market and may lead to an economic slowdown that officials have thus far avoided.

Stocks Climb on Soft Landing Hopes

The stock market gauges are on track for weekly wins after confidence in the economy returned to the market. A solid GDP reading, combined with continued cooling in inflation, has cemented growing conviction that the Fed can nail a "soft landing" as it embarks on a rate-cutting campaign.The S&P 500 (^GSPC) rose 0.1% after eking out a third record-high close this week. The Dow Jones Industrial Average (^DJI) gained 0.7%, while the tech-heavy Nasdaq Composite (^IXIC) sank just below the flatline. Investors appear to be embracing the notion that the Fed can orchestrate a delicate balancing act, cooling inflation without triggering a severe economic downturn.

China Stimulus Boosts Global Markets

Elsewhere, China added to its stream of stimulus measures, boosting markets once again. Mainland stocks scored their biggest weekly win since 2008, and luxury stocks are set for their best week in years as hopes for Chinese demand rise. Meanwhile, shares of Alibaba (BABA, 9988.HK), JD.com (JD, 9618.HK), and Meituan (3690.HK, MPNGY) surged amid the buying spree.The Chinese government's latest efforts to prop up its slowing economy have provided a tailwind for global equities, as investors bet that the world's second-largest economy can regain its footing. The infusion of stimulus has fueled optimism that Chinese consumer demand, a crucial driver of global growth, will rebound in the coming months.

Costco's Gold Rush Offsets Soft Sales

In individual stock news, Costco (COST) stock slipped in morning trading after the wholesale giant's revenue disappointed Wall Street. However, the company's surging sales of gold bars helped offset the soft top-line performance.Costco reported that sales of gold were up "double digits" in the most recent quarter, with the precious metal serving as a "meaningful tailwind" to e-commerce sales. The wholesale retailer began selling gold bars in the fall of 2023, and Wells Fargo analysts estimate the company is moving bars worth 0 million to 0 million each month.Despite the hefty sales of gold, Costco's bread and butter is still hawking products like, well, bread and butter to cost-conscious shoppers. Its fiscal fourth quarter, same-store sales growth came in at 6.9%, compared with estimates of 6.4% on Wall Street. E-commerce sales jumped 19.5%, slightly lower than the 19.63% growth rate analysts projected.

Intel Explores Strategic Options Amid Chip Sector Upheaval

Elsewhere in the tech sector, Intel (INTC) stock rose 1.8% in early trading Friday after reports that the chipmaker and the US government are on track to finalize .5 billion in CHIPS Act funding for the company by the end of the year.Separately, Bloomberg reported that Arm Holdings (ARM), the British chip designer, expressed interest in buying Intel's product business. The potential offer was rebuked by Intel, according to unnamed sources.Intel has also reportedly been approached by Qualcomm (QCOM) and investment manager Apollo to buy the company in its entirety. Intel shares have climbed on the news over the past week, but are still down more than 50% from the beginning of the year.The flurry of activity around Intel underscores the upheaval in the semiconductor industry, as companies jockey for position amid shifting market dynamics and geopolitical tensions. Intel's exploration of strategic options, including potential divestitures and acquisitions, suggests the tech giant is seeking to reposition itself for long-term success in a rapidly evolving landscape.