Market Snapshot: U.S. stocks aim for 5-day win streak after PCE inflation reading offers no surprise

What’s driving markets

Stock-index futures held gains after data showed the cost of goods and services rose a mild 0.2% in July, in line with the forecast for the personal consumption expenditures index produced by a poll of economists by The Wall Street Journal. Year-over-year, the measure showed inflation rose 3.3% versus 3% in June.

The core PCE reading, which strips out food and energy prices and is often described as the Fed’s favorite inflation measure, was also in line with expectations, showing a 0.2% monthly rise, while the year-over-year rate ticked up to 4.2% from 4.1%.

All measures of inflation tracked by the Fed have moved higher on a year-over-year basis in July, said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a note.

“But monthly gains have downshifted for overall and core PCE prices in recent months. The data bear watching for a reversal of progress on inflation although our estimates suggest prices pressures will ease over the remainder of the year,” she wrote.

The S&P 500’s rally to a four-week high has coincided with benchmark Treasury yields
BX:TMUBMUSD10Y
pulling back from multi-year peaks as traders bet that some weaker jobs data of late will allow the Federal Reserve to stop raising borrowing costs.

“Since softer employment metrics are one of the most critical inputs for inflation normalization, it has led to a significant shift in the near-term outlook for U.S. interest rates and ignited a rally in stocks and other high-risk assets,” said Stephen Innes, managing partner at SPI Asset Management.

In other data, initial jobless claims fell by 4,000 to 228,000 in the week ended Aug. 26, the Labor Department said. It’s the lowest level of claims since the week ended July 29. Economists polled by The Wall Street Journal had estimated new claims would rise 5,000 to 230,000.

Traders will also be aware of Friday’s August nonfarm payrolls report, which will provide more information “as to whether the labor market is actually softening, with a consensus that 170,000 jobs will have been added in August compared to 187,000 the previous month,” noted Richard Hunter, head of markets at Interactive Investor.

See: Hiring likely slowed again last month, but watch out for surprises in U.S. August jobs report

“With traders currently assuming an interest rate pause for September, the question remains as to whether the end of the hiking cycle has been reached. Such an outcome would be positive for growth stocks in particular, which has enabled ongoing strength within the mega cap technology sector,” Hunter added.

A trio of well-received earnings reports from technology companies Salesforce Inc.
CRM,
+5.29%,
Okta Inc.
OKTA,
+13.45%
and CrowdStrike Holdings Inc.
CRWD,
+8.35%,
delivered after Wednesday’s closing bell, were also providing some support to sentiment.

Other U.S. economic updates set for release on Thursday include the weekly initial jobless benefit claims at 8:30 a.m., and the Chicago Business Barometer for August, released at 9:45 a.m.

Companies in focus

• Salesforce shares rallied more than 5% premarket following the Dow Jones Industrial Average
  DJIA
  component’s strong outlook and improved margins two weeks ahead of the customer-relations management software giant’s annual confab Dreamforce in San Francisco.

• UBS shares
  UBS,
  +5.36%
  rose 5%, as the Swiss bank reported a $29 billion profit and said inflows to wealth management have been positive this quarter.

• Dollar General Corp.’s stock tumbled 13.9% in premarket trade Thursday, after the discount retailer posted weaker-than-expected second-quarter earnings and lowered its guidance.