Stock prices rose on Friday after a positive inflation report indicated that price increases are slowing down. The S&P 500 climbed by 0.5%, the Nasdaq added 0.7%, and the Dow Jones Industrial Average gained 160 points, or 0.4%, continuing the positive momentum from the previous day’s record high. With inflation easing, investors are optimistic about the possibility of the Federal Reserve lowering interest rates at its upcoming meeting.

Inflation Report Confirms Cooling Prices

The eagerly awaited inflation report, closely watched by the Federal Reserve, provided evidence that inflation pressures are easing. The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation, rose by only 0.1% in July, bringing the year-over-year rate to 2.6%. This is slightly above the Fed’s 2% target and a significant decrease from the 7.1% peak in mid-2022.

The report has increased optimism that the Fed will soon shift away from its aggressive monetary tightening policy. Traders are now increasingly confident that the central bank will lower its benchmark interest rate as early as September. Market expectations are that the Fed will cut rates by a full percentage point by the end of the year, a move that would lower borrowing costs across the economy and potentially stimulate further growth.

Chipmakers Lead the Rally

The positive inflation report also boosted chipmakers, which saw widespread gains on Friday. Marvell Technology (NASDAQ:MRVL) surged 7.3% after reporting quarterly results that met Wall Street’s sales and profit expectations. The company’s strong performance reflects the ongoing demand for chips, particularly in sectors like artificial intelligence and data centers.

Dell Technologies (NYSE:DELL) also announced better-than-expected earnings, driven by record revenue from its server and networking division. The company’s stock rose 4.4% in premarket trading, as it continues to benefit from businesses investing in AI infrastructure.

Mixed Results for Retailers

Not all sectors shared in the market’s gains. Ulta Beauty (NASDAQ:ULTA), a mall-based cosmetics retailer, saw its shares drop 8.7% after reporting sales and profits that fell short of expectations. Despite its recent challenges, Ulta remains a significant player in the beauty industry, though it lowered its guidance for the remainder of the year.

Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B), which recently revealed a stake in Ulta, may need to reassess its position as the company navigates a challenging retail environment.

Global Markets React to U.S. Inflation Data

Global markets responded positively to the U.S. inflation data, with European indices showing modest gains. France’s CAC 40 advanced 0.3%, Germany’s DAX ticked up by 0.2%, and Britain’s FTSE 100 rose 0.3%. These movements reflect a broader optimism that the Fed’s potential rate cuts could support global economic growth.

In Asia, Japan’s Nikkei 225 added 0.7%, closing at 38,647.75. The rise was partly due to industrial production data, which showed a 2.8% increase in July, rebounding from a 4.2% decline in June. However, Tokyo’s consumer prices rose more than expected, increasing by 2.6% year-over-year in August. This uptick in inflation is likely to draw attention from the Bank of Japan, which may consider raising interest rates later this year or early next year.

Energy and Currency Markets

In energy trading, oil prices saw slight declines. Benchmark U.S. crude dropped 17 cents to $75.74 per barrel, while Brent crude, the international standard, fell by 9 cents to $78.73 per barrel. These modest declines reflect a balancing act between supply concerns and the potential for slower economic growth.

On the currency front, the U.S. dollar strengthened slightly against the Japanese yen, rising to 145.37 yen from 145.02 yen. The euro also saw a slight increase, trading at $1.1084, up from $1.1082.

Conclusion: Fed Rate Cuts on the Horizon?

The latest inflation report has reinforced the idea that price pressures are easing, setting the stage for potential Federal Reserve rate cuts. As Wall Street continues to respond positively, particularly in sectors like technology and chipmaking, investors are increasingly optimistic about the market’s direction. The upcoming Fed meeting will be closely watched as traders and analysts alike anticipate the central bank’s next move.