Stocks listed on the New York Stock Exchange closed the week higher, recovering from earlier losses related to corporate earnings that came in lower than expected. The benchmark S&P 500 closed 1.1% higher, while the tech-heavy Nasdaq Composite gained 1%. The Dow Jones Industrial Average surged by 1.6%.
Investor disappointment following the latest round of corporate earnings was largely wiped out following the release of the personal consumption expenditure index (PCE), the Federal Reserve’s preferred inflation gauge. While prices rose higher than economists expected, they still rose at their slowest rate over the past three years. This has given the Federal Reserve confidence that inflation is heading toward its 2% target.
This resurgence in investor confidence has resulted in a boost in small cap investment. “The prospect for interest-rate cuts has helped underpin the surge-like move into smaller names,” Quincy Krosby at LPL Financial observed. “Still, there has been a prevailing concern that because small caps require a solid economic landscape, a weaker US economy could easily hinder investor interest.”
Economists surveyed by Bloomberg appear to be of the opinion that the Federal Reserve will indicate within the next week its intention to cut interest rates at its next policy meeting. A quarter-point reduction is expected for September.