"Stocks have been hitting records in large part because Wall Street is expecting the economy to pull off a delicate balancing act: slowing enough to convince the Federal Reserve to cut interest rates, but not so much that it causes a recession, all while inflation remains under control. Many things must go right for that to happen, and an encouraging signal came from Wednesday's report showing that inflation at the U.S. wholesale level unexpectedly slowed in August."
"A potentially more important report is coming Thursday that will show how bad inflation has been for U.S. households, but Wednesday's update "essentially rolled out the red carpet for a Fed rate cut next week," according to Chris Larkin, managing director, trading and investing, at E-Trade from Morgan Stanley. Traders were already convinced that the Fed will deliver its first cut to interest rates of the year at its next meeting, but they need inflation data in the interim"
"Traders were already convinced that the Fed will deliver its first cut to interest rates of the year at its next meeting, but they need inflation data in the interim to come up mild enough not to derail those expectations. That's because cuts to interest rates can push inflation higher, along with giving the economy a kickstart, and hot inflation could tie the Fed's hands."
The S&P 500 rose 0.2% and was poised for a second straight all-time high, while the Dow fell 221 points, or 0.5%, and the Nasdaq was mostly unchanged after prior records. Markets are pricing an economic soft landing that slows growth enough to prompt Federal Reserve rate cuts without triggering a recession, with inflation remaining under control. Wholesale inflation unexpectedly slowed in August, easing pressure on near-term policy. A consumer inflation report due Thursday could further influence Fed decisions. Traders largely expect a rate cut next week, noting that rate cuts can boost inflation and economic activity. Tech shares rallied on Oracle's AI-driven revenue guidance.
Read at Fortune
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