Stock Market Today: Stocks Rally Hard After Inflation Data

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published 28 July 2023

Stocks popped out of the gate Friday and stayed higher through the close. Today's positive price action came as a result of an encouraging reading on inflation, as well as a rally in Big Tech stocks following well-received earnings from Dow Jones stock Intel (INTC).

Taking a quick look at this morning's inflation data, the Bureau of Economic Analysis said its June personal consumption and expenditures index (PCE), which tracks consumer spending, was up 0.2% month-over-month and 3.0% year-over-year. While the monthly figure was greater than the 0.1% increase seen in May, the annual increase decelerated from the prior month. Core PCE, which excludes volatile food and energy prices, also slowed vs May.

Market participants were also happy to see that the second-quarter employment-cost index, which measures wage growth, was up 4.5% on an annual basis, slower than the 4.8% increase seen in Q1.

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This morning's data "came in softer than expected to top off a full week chock full of economic data that all points to a higher probability of a soft landing," says Gina Bolvin, president of Bolvin Wealth Management Group. "Next week's employment report [due out Friday morning] is another big data point since there is no Fed meeting next month. The Fed is data dependent but so is the market!"

The jobs report is just one of many economic reports to roll in ahead of the next Fed meeting, so it's hard to tell what the central bank intends to do about interest rates moving forward. However, following today's inflation update, the probability of another quarter percentage point rate hike at the September gathering dipped to 20% from yesterday's 22% reading, according to CME Group. On Wednesday, the Fed hiked rates by 25 basis points (0.25%) to bring the target range to its highest level in 22 years.

Intel pops on solid Q2 earnings

Meanwhile, on the earnings front, Intel reported an unexpected second-quarter profit of 28 cents per share. Revenue also came in above estimates, at $15.3 billion, as did adjusted gross margins of 39.8%.

"We had obviously beat revenue significantly and we got a good fall-through, given the fixed cost nature of our business," said Dave Zinsner, chief financial officer of Intel, in the company's earnings call. "And so, that really was what helped us really outperform significantly on the gross margin side in the second quarter."

XPeng leads rally in EV stocks

While INTC's 6.6% post-earnings pop was certainly a talking point on Wall Street today, a broad rally in shares of electric vehicle (EV) makers also made headlines. EV stocks have been hot all week following news that Volkswagen (VWAGY, -0.04%) took a stake in China's Xpeng (XPEV). Today, Jefferies analysts upgraded XPEV to Buy from Hold, saying that the partnership between the two is "the start of China original equipment manufacturers exporting technologies to foreign players." XPEV stock jumped 15.7% in reaction, while Tesla (TSLA, +4.2%), Nio (NIO, +11.3%) and Nikola (NKLA, +8.1%) also rose.

Not all EV-focused automakers gained ground today, though. Ford Motors (F) shed 3.6% after the company reported earnings. Despite delivering a beat-and-raise report, Ford said it won't reach its production rate target of 600,000 electric vehicles until 2024. It had previously set late 2023 as its date to reach that goal.

As for the major indexes, the Nasdaq Composite surged 1.9% to 14,316, the S&P 500 gained 1.0% to 4,582, and the Dow Jones Industrial Average rose 0.5% to 35,459.

With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at Schaeffer's Investment Research. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.