Wall St closes up on revival supported by inflation data, tech stocks
PCE inflation rises moderately in June
Russell 2000, S&P Small Cap 600 gain for fourth day in five
Deckers, Baker Hughes, Norfolk Southern climb after results
Indexes up on Friday: Dow 1.64%, S&P 1.11%, Nasdaq 1.03%
Indexes this week: Dow up 0.8%, S&P down 0.8%, Nasdaq down 2.1%
Updates with closing prices
By David French
July 26 (Reuters) -Wall Street's major indexes ended higheron Friday as investors flocked back to tech megacaps that had triggered broad sell-offs earlier in the week, and inflation data boosted optimism that the Federal Reserve will soon commence cutting interestrates.
For the S&P 500 .SPX and Nasdaq Composite .IXIC, the advances could not completely recoup the ground lost in the two previous sessions, with both indexes ending the week lower for the second consecutive week.
The Dow Jones Industrial Average .DJI ended in positive territory for the week. Its Friday gains were aided byindustrial conglomerate 3M MMM.N, which jumped 23% toits largest daily percentage gain in decades after it raised the lower end of its annual adjusted profit forecast.
Five membersof the so-called Magnificent Seven rose on Friday, led by Meta Platforms .META.O which climbed 2.7%. The two exceptions were Tesla TSLA.O and Alphabet GOOGL.O, whose lackluster earnings had triggered Wednesday's big market sell-off. They both fell 0.2%, with Alphabet dropping to its lowest close since May 2.
With further Magnificent Seven earnings due next week, the immediate outlook for markets may hinge on what type of results these companies deliver.
"What we get next week from Apple <AAPL.O>, Microsoft <MSFT.O>, Amazon.com <AMZN.O> and Meta is really going to set the tone for whether that rotation continues and, directionally, where the market goes," said Greg Boutle, head of US equity & derivative strategy at BNP Paribas.
The rotation involves moving out ofa set ofhigh-momentum stocks, whose valuations now appear inflated,to underperforming sectors like mid- and small-cap stocks.
This shift seems to have gained momentum in recent weeks, with the small-cap Russell 2000 .RUT and S&P Small Cap 600 .SPCY both advancing to their fourth closing highs of the week.
The Russell 2000 .RUT scored its third straight weekly gain in two months and its best three-week run since August 2022.
These economically sensitive small-caps were supported on Friday by themoderate rise in June U.S. prices, which underlined coolinginflation and potentially positions the Fed to start easing policy in September.
Bets on a 25-basis-point cut at the Fed's September meeting held steady at about 88% after the PCE reading, according to CME's FedWatch. Traders still largely expect two rate cuts by December, LSEG data showed.
"We did see (the stable economic data) as beneficial for that broadening trade," said Adam Hetts, global head of multi-asset at Janus Henderson, noting small-caps had outperformed the S&P 500 by more than 10% over the last month.
The broadening trade has also benefited cyclical sectors of the economy. On Friday, all 11 of the S&P sectors were higher, withIndustrials .SPLRCI and Materials .SPLRCM the leading gainers.
On Friday, the S&P 500 .SPX gained 59.88 points, or 1.11%, at 5,459.10 points, while the Nasdaq Composite .IXIC climbed 176.16 points, or 1.03%, to 17,357.88. The Dow Jones Industrial Average .DJI rose 654.27 points, or 1.64%, to 40,589.34.
For the week, the Dow gained 0.75%, while the S&P 500 declined 0.82% and the Nasdaq dropped 2.08%.
Among stocks boosted by earnings, Deckers Outdoor DECK.N jumped 6.3% afterit raised its annual profit forecast, while oilfield services firm Baker Hughes BKR.O climbed 5.8% afterbeating estimates for second-quarter profit.
Norfolk Southern NSC.N soared 10.9%, its largest one-day percentage gain since March 2020, afterthe rail operator reported second-quarter profit above Wall Street estimates thanks to robust pricing.
Medical device maker Dexcom DXCM.O slumped 40.6% aftercutting its annual revenue forecast.
Volume on U.S. exchanges was 10.92 billion shares, compared with the 11.61 billion average for the full session over the last 20 trading days.
Reporting by Ankika Biswas and Lisa Mattackal in Bengaluru and David French in New York; Editing by Saumyadeb Chakrabarty, Pooja Desai and Richard Chang
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