Stocks Surge Closer to Records as Economic Data Meets Expectations

U.S. stocks made significant strides towards their all-time highs on Thursday, buoyed by economic reports that largely aligned with market expectations. The S&P 500 index climbed 0.7%, inching within 1.3% of its record set in July, as the broader market continued its recent winning streak.

Steady Economic Indicators Fuel Investor Confidence

Positive Signals from the Labor Market

The latest data on U.S. jobless claims provided a reassuring signal, with the number of workers applying for unemployment benefits ticking up slightly but remaining low compared to historical norms. This suggests the labor market remains resilient, despite concerns about a potential economic slowdown.The steady performance in the job market reinforces the view that the Federal Reserve may opt for a more moderate interest rate hike at its upcoming policy meeting, rather than a more aggressive move. Investors are closely watching the central bank's actions, as any changes to the benchmark interest rate can have a significant impact on the broader economy and financial markets.

Wholesale Inflation Cools, but Underlying Pressures Persist

The report on wholesale prices offered a mixed picture, with the overall inflation rate slowing to 1.7% in August from the previous month. However, an underlying measure that economists consider a better predictor of future trends ticked up more than expected, indicating that inflationary pressures have not yet fully abated.This data, combined with the consumer price index report released a day earlier, suggests that the Fed still has work to do in its battle against inflation. While the central bank is widely expected to deliver a quarter-point rate hike at its upcoming meeting, the path forward remains uncertain as policymakers navigate the delicate balance between taming inflation and supporting economic growth.

Sector Standouts and Laggards

The day's trading saw a mix of winners and losers, with the technology sector emerging as a standout performer. Nvidia, a leading chipmaker, continued its recent resurgence, gaining nearly 16% for the week as investors regained confidence in the company's prospects amid the ongoing AI boom.In contrast, Moderna, the vaccine maker, experienced a significant 12.4% decline after the company pushed back its timeline for achieving profitability, now expecting to break even in 2028 instead of its previous forecast of 2026. The company also announced plans to reduce its research and development investment for the 2025-2028 period by 20%, reflecting the challenges it faces in the aftermath of the COVID-19 pandemic.

Shifting Expectations for the Federal Reserve

The latest economic data did little to alter the prevailing market sentiment that the U.S. economy is slowing, along with inflation. As a result, traders have adjusted their expectations for the Federal Reserve's upcoming policy decision, now betting on a more modest quarter-point rate hike rather than the larger half-point increase that had been previously anticipated.This shift in expectations reflects the central bank's delicate balancing act, as it seeks to strike a balance between taming inflation and supporting economic growth. The Fed's actions will be closely watched, as any changes to interest rates can have significant implications for the broader financial landscape, including the bond market and mortgage rates.

Global Market Movements

The positive sentiment in the U.S. stock market was echoed in global markets, with indexes across much of Europe posting gains. In Asia, Japan's Nikkei 225 index stood out, rebounding strongly with a 3.4% jump after a recent seven-day losing streak.The European Central Bank also joined the effort to support economic growth, cutting interest rates by a quarter of a percentage point on Thursday, the second such move in its ongoing efforts to prop up the region's economy.As investors navigate the evolving economic landscape, the interplay between central bank policies, corporate earnings, and global market dynamics will continue to shape the trajectory of the financial markets in the coming weeks and months.