Dow leads Wall St revival on inflation data, tech stocks rebound
PCE inflation rises moderately in June
Russell 2000 hits one-week high
Deckers, Baker Hughes climb after results
Dexcom slips after cutting revenue forecast
Indexes up: Dow 1.73%, S&P 1.24%, Nasdaq 1.07%
Updated to 2:01 p.m. ET/1801 GMT
By David French
July 26 (Reuters) - Wall Street's major stock indexes rose on Friday, on course to recoup some ground lost earlier in the week, as tech megacaps recovered and in-line inflation data supported bets that the Federal Reserve would cut interest rates in September.
The Dow Jones Industrial Average .DJI led the way, aided byindustrial conglomerate 3M MMM.N, which jumped 20% and was on track for its largest daily percentage gain in decades afterit raised the lower end of its annual adjusted profit forecast.
The S&P 500 .SPX and Nasdaq Composite .IXIC were also set to end the week firmer, aided by rebounds in the megacap stocks that led the index's declines in the two previous sessions.
Tesla TSLA.O rose 0.3% and Alphabet GOOGL.O fell 0.1%, two days after their lackluster earnings had triggered Wednesday's big market sell-off.
The other members of the so-called Magnificent Seven tech megacaps rose, led by Meta Platforms .META.O which advanced 3%.
Chip stocks also gained, with thePhiladelphia SE Semiconductor index .SOX on track to snap a three-day losing streak with its 2% gain. ConstituentsNvidia NVDA.O, Marvell Technology MRVL.O, Broadcom AVGO.O, Texas Instruments<TXN.O> andQualcomm QCOM.O each rosemore than 0.9%.
The 10-year Treasury yield US10YT=RR turned lower followingthe inflation data. US/
Economically sensitive small-cap stocks rose, with the Russell 2000 .RUT jumping 1.2%, set for its third straight weekly gain in two months and its best three-week run since August 2022.
The moderate rise in U.S. prices underlined an improving inflation environment, potentially positioning the Fed to start easing policy in September. The central bank's July monetary policy decision is due next week.
Adam Hetts, global head of multi-asset at Janus Henderson, noted that this week's data, including Friday's price report, have signaled a stable U.S. economy, which supports a September rate cut.
However, in a market which is"priced to perfection," investors may sell off on any perceived upsets, he noted.
"We've had this emotional rollercoaster, from Goldilocks to growth scare, back to Goldilocks mode."
Bets ona 25-basis-point cut atthe 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.
As of 2:01 p.m. ET,the S&P 500 .SPX gained 66.86 points, or 1.24%, at 5,466.08 points, while the Nasdaq Composite .IXIC advanced181.87 points, or 1.07%, to 17,365.99. The Dow Jones Industrial Average .DJI rose 690.12 points, or 1.73%, to 40,625.19.
However, the S&P 500 and the Nasdaq remained on track for a second straight week of losses after investors dumped tech stocks over the past few weeks.
Worries about Wall Street's growing dependence on a set of high-momentum stocks, whose valuations now appear inflated, have made underperforming sectors like mid- and small-cap stocks seem more attractive, now that early rate cuts seem likely.
Industrials .SPLRCI and Materials .SPLRCM led gains across the S&P 500 sector indexes.
Among stocks boosted by earnings, Deckers Outdoor DECK.N jumped 7.5% after it raised its annual profit forecast, while oilfield services firm Baker Hughes BKR.O climbed 5.3% after beating estimates for second-quarter profit.
Norfolk SouthernNSC.N jumped 11.2%, on course for its largest daily percentage gain since March 2020, after the rail operatorreported second-quarter profit above Wall Street estimates thanks to robust pricing.
Medical device maker Dexcom DXCM.O slumped 40.9% after cutting its annual revenue forecast.
Of the 206 companies in the S&P 500 that have reported second-quarter earnings, 78.6% beat analysts' expectations, LSEG data showed.
U.S. stocks weekly performance https://tmsnrt.rs/3yauR7f
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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