Stock Market Update

[BRIEFING.COM] Stocks are staging a broad rebound on Friday, reclaiming a sizable portion of this week's losses despite an August CPI report that strengthened expectations for a rate hike at next week's FOMC meeting. The S&P 500 (+1.0%), Nasdaq Composite (+1.1%), and DJIA (+1.1%) remain firmly higher just after midday, although all three major averages are still on track for a lower finish for the holiday-abbreviated week.

The market's ability to look past the inflation report has been notable. Total CPI increased 0.4% month-over-month in August, as expected, while core CPI rose 0.3% (Briefing.com consensus: 0.2%). The report pushed the implied probability of a 25-basis-point rate hike sharply higher, with the CME FedWatch Tool currently assigning an 86.5% probability to a move next week. That is below the immediate post-report reading of 90.4%, but well above the 69.4% probability seen before the release.

Instead, some relief from this week's surge in crude oil has helped stocks overcome the more hawkish rate outlook. WTI crude is down nearly 3% and has slipped back below $100 per barrel amid reports that Gulf states will meet with Iran on Monday to discuss the Strait of Hormuz. The pullback has provided some breathing room after oil climbed above $102 per barrel yesterday and served as a persistent headwind during the market's recent losing streak.

The rebound is broad, although growth stocks are providing some of the strongest leadership. The communication services (+1.7%) and information technology (+1.2%) sectors sit near the top of the standings, while the Vanguard Mega Cap Growth ETF is up 1.1%. Semiconductor stocks are also participating, with the PHLX Semiconductor Index up 2.1%.

Oracle's (ORCL 151.70, -1.24, -0.81%) earnings results have provided an additional boost to the AI infrastructure trade. The stock initially jumped by double digits following its report before surrendering the advance, but the company's 121% year-over-year growth in cloud infrastructure revenue, more than $30 billion of new AI-cloud contracts, and maintained FY27 capital spending plans have provided a favorable read-through for hardware suppliers. Dell (DELL 558.15, +51.53, +10.17%), Hewlett Packard Enterprise (HPE 60.87, +5.64, +10.22%), Super Micro Computer (SMCI 38.98, +1.60, +4.28%), and NetApp (NTAP 195.02, +11.42, +6.22%)are all posting sizable gains as investors anticipate continued spending on servers, networking equipment, and storage to support the data center buildout.

Strength extends beyond the technology complex, with the industrials (+1.2%) and consumer discretionary (+1.1%) sectors among the other outperformers.

Defensive areas are notably trailing the rebound, as the health care sector is flat and the utilities sector (+0.1%) holds only a modest gain.

Overall, Friday's advance has recaptured a meaningful portion of the week's decline even as the CPI report strengthened the case for a rate hike next week. Lower oil prices and renewed leadership from technology and mega-cap stocks have so far outweighed those policy concerns, allowing the major averages to mount their strongest rebound of an otherwise difficult week.

Reviewing today's data:

• August CPI 0.4% (Briefing.com consensus 0.4%); Prior 0.1%, August Core CPI 0.3% (Briefing.com consensus 0.2%); Prior 0.2%
  • The key takeaway from the report is that it wasn't good enough to put September rate-hike fears to rest.
• September Univ. of Michigan Consumer Sentiment - Prelim 47.8 (Briefing.com consensus 51.5); Prior 51.7
  • The key takeaway from the report is the dour outlook embedded in the index of consumer expectations, which was plagued by a worsening outlook for personal finances and business conditions.