Fed’s Preferred Price Gauge Rises at a Moderate Rate, Spending Firms – US Market Wrap

The stock market rallied at the end of a wild week after key economic data fuelled speculation that the Federal Reserve will set the stage for a rate cut in September.

Every major group in the S&P 500 rose Friday on bets that a Fed easing cycle will continue to fuel Corporate America, with the bull market expanding beyond a small group of companies. While big tech has made massive gains this year, concerns about the so-called concentration risk have emerged following a disappointing start to the megacap earnings season.

The rotation into economically sensitive shares began in July, following Fed-friendly data. Investors who had previously seen fewer alternatives to a smaller group of stock-market winners were suddenly presented with more options. Financial, industrial, and staples stocks have largely outperformed technology. Small caps have risen 10% on bets that they will perform better with lower borrowing costs given their higher debt loads.

Friday’s economic data only strengthened those bets. The Fed’s preferred measure of underlying US inflation, the core personal consumption expenditures price index, rose at a slow pace in June, while consumer spending remained strong. In July, US consumer sentiment fell to an eight-month low.