By Sinéad Carew and Shashwat Chauhan
(Reuters) – Wall Street's major indexes rose on Thursday after stronger-than-expected producer price data reinforced expectations for a 25 basis point rate cut by the Federal Reserve, while Modern (NASDAQ:) plunged after a downbeat earnings forecast.
The producer price index (PPI) for final demand rose 0.2% in August, compared with estimates for a 0.1% increase. The core figure, which excludes volatile food and energy prices, rose 0.3%, above the 0.2% expected.
Initial claims for state unemployment benefits, meanwhile, came in at 230,000 for the week ending Sept. 7, in line with estimates.
“This week's data confirms that we're not likely to have a hard landing, but rather a soft landing. Inflation has come down in both the consumption and production numbers,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
“As long as investors see that interest rate cut and a path forward for interest rate cuts, they will be excited about the outlook in the stock market and especially in the higher growth sectors.”
A string of weakening employment and economic growth data in recent weeks had fueled some bets on a larger-than-usual 50-basis-point interest rate cut by the Fed, but those bets faded after Wednesday's inflation report.
While bets fluctuated on Thursday, traders were still betting on a 69% chance that the U.S. central bank will cut rates by just 25 basis points when it meets on Sept. 17-18, CME’s FedWatch tool showed. It would be the first rate cut since March 2020.
According to preliminary data, the S&P 500 gained 42.70 points, or 0.77%, to close at 5,596.83, while the Nasdaq Composite gained 175.63 points, or 1.01%, to close at 17,571.16. The Dow Jones Industrial Average rose 243.64 points, or 0.60%, to close at 41,105.35.
Small-cap companies, which are more sensitive to the economy, outperformed during the session.
“There's probably some bargain hunting going on. Small-caps are a sector that's been a laggard all year and they tend to be rate-sensitive, so if rates go down, that could have a sizable impact,” said Chuck Carlson, managing director of Horizon Investment Services in Hammond, Indiana.
Meanwhile, Moderna shares fell after the vaccine maker forecast sales of $2.5 billion to $3.5 billion next year, below analysts' estimates.
Kroger (NYSE:) shares rose after the grocery chain beat second-quarter estimates and raised the low end of its annual sales forecast.
Warner Bros Discovery (NASDAQ:) shares and Letter Communications (NASDAQ:) gained after announcing that Charter would offer an ad-supported version of Warner's streaming services, Max and Discovery+.
Gold mining stocks rose to an all-time high, with the Arca Gold BUGS index gaining.
!function(f,b,e,v,n,t,s){if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)};if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;n.queue=();t=b.createElement(e);t.async=!0;t.src=v;s=b.getElementsByTagName(e)(0);s.parentNode.insertBefore(t,s)}(window, document,’script’,’https://connect.facebook.net/en_US/fbevents.js’);