Stocks traded mixed on Friday but closed the week on a high as investors embraced an inflation report seen as crucial to the Federal Reserve’s next decision on interest rate cuts.
The Dow Jones Industrial Average (^DJI) gained 0.3% and finished with a fresh record. The S&P 500 (^GSPC) lost 0.1%, but is coming off a record-high close from the prior session. Meanwhile, the tech-heavy Nasdaq Composite (^IXIC) sank about 0.4%.
Despite the mixed trading on Friday, the stock gauges all recorded wins for the week after confidence in the economy returned to the market. The Dow and the S&P added about 0.7%, while the Nasdaq rose 1%.
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.
The August reading of the Personal Consumption Expenditures (PCE) index, the inflation metric favored by the Fed, showed continued cooling in price pressures. The “core” PCE index, which is most closely watched by policymakers, rose 0.1% month over month, lower than Wall Street forecasts.
The PCE reading appeared to goose up bets on another jumbo-sized rate cut from the Fed next month. More than half of traders — around 52% — now expect a 50 basis point cut.
Read more: What the Fed rate cut means for bank accounts, CDs, loans, and credit cards
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. Meanwhile, shares of Alibaba (BABA, 9988.HK), JD.com (JD, 9618.HK), and Meituan (3690.HK, MPNGY) surged amid the buying spree.
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Zuckerberg faces deposition in AI copyright lawsuit from Sarah Silverman and other authors
One of the most important debates sparked over the sudden rise of generative AI tools is whether the process of training large language models using existing artistic works is a new form of copyright infringement.
An array of authors, media outlets and other creative professionals have sued to stop AI companies from using their content on the internet, arguing that their works are being used without compensation in order to advance a new technology and market opportunities.
Meta CEO Mark Zuckerberg will soon play a direct role in one of the most important lawsuits tackling this subject. Earlier this week a US District Court judge overseeing a suit brought by authors including Sarah Silverman and Ta-Nehisi Coates rejected Meta’s bid to prevent the deposition of Zuckerberg, the Associated Press reported Friday.
Meta had tried to block Zuckerberg’s deposition by arguing that he does not have unique knowledge of the company’s AI operations and other Meta employees could provide the same information. Zuckerberg’s participation will likely draw even more attention to the legal matter, similar to his high-profile appearances on Capitol Hill during Congressional hearings on the role of social media in society.
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New PCE reading supports case for smaller Fed rate cut in November
Change in core PCE since 2018 A fresh reading on inflation Friday keeps the Federal Reserve on track to continue cutting interest rates this fall, likely in 25 basis point increments, reports Yahoo Finance’s Jennifer Schonberger.
The result means that a bigger 50 basis point cut may be hard to justify at the Fed’s next meeting in November, according to some Fed watchers.
The fact that core inflation year-over-year is holding the level of the last two months, and not dropping, lines up more with a scenario for a smaller cut — lest the job market substantially weaken between now and November.
“The core year-over-year at 2.7% suggests that another round of 50 basis points needs to come under careful scrutiny unless the labor market suggests weakness,” said Quincy Krosby, chief global strategist for LPL Financial.
The consensus among Fed officials outlined last week is for two more 25 basis point rate cuts in 2024.
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