Inflation Cools, Stocks Soar: Investors Cheer Positive Economic Signals

US stock futures pointed toward gains on Friday as investors digested an inflation report seen as crucial to the Federal Reserve's next decision on interest-rate cuts. The August reading of the Personal Consumption Expenditures (PCE) index, the inflation metric favored by the Fed, showed continued cooling in price pressures, fueling optimism about the economy's trajectory and the potential for further rate cuts.

Investors Embrace Positive Economic Outlook

Inflation Cools, Boosting Confidence in Fed's Soft Landing

The "core" PCE index, which is most closely watched by policymakers, rose 0.1% month over month, lower than Wall Street forecasts. This reading appeared to goose up bets on another jumbo-sized rate cut from the Fed next month, with more than half of traders now expecting a 50 basis point cut. The stock gauges are on track for a weekly win as confidence in the economy returned to the market. A solid GDP reading, combined with continued cooling in inflation, has cemented growing conviction that the Fed can nail a "soft landing" as it embarks on a rate-cutting campaign.

China's Stimulus Measures Buoy Global Markets

Elsewhere, China added to its stream of stimulus measures, boosting markets once again. Mainland stocks scored their biggest weekly win since 2008, and luxury stocks are set for their best week in years as hopes for Chinese demand rise. This influx of Chinese stimulus has had a ripple effect, lifting markets around the world and fueling optimism about the global economic outlook.

Individual Stock Movers Reflect Broader Trends

In individual stock moves, Costco (COST) stock slipped in premarket trading after the wholesale giant's revenue disappointed Wall Street. This underscores the nuanced nature of the current market, where some companies may struggle even as the broader economic picture brightens. Investors will be closely watching for similar divergences as they assess the health of the overall market.

Nasdaq and Dow Futures Climb, Signaling Broad-Based Optimism

S&P 500 futures (ES=F) were up 0.2%, on the heels of eking out a third record-high close this week. Dow Jones Industrial Average futures (YM=F) and those on the tech-heavy Nasdaq 100 (NQ=F) were also up around 0.2%. This broad-based rally across major indices suggests that investors are embracing the positive economic signals and are positioning themselves for potential further gains.