Wall Street advances as traders mull chances of bigger Fed rate cut

By Shashwat Chauhan and Purvi Agarwal

(Reuters) -Wall Street's main indexes rose on Friday as investors reevaluated the possibility of a bigger interest rate cut by the Federal Reserve next week, while Photoshop maker Adobe tumbled after forecasting fourth-quarter earnings below estimates.

Traders' bets of a 50-basis point rate cut jumped overnight, now standing at 43% compared with 14% on Thursday, CME's FedWatch Tool showed.

Former New York Fed President Bill Dudley said there was a strong case for a 50-bps interest rate cut. Separate media reports calling the decision "a close call" also added to the uncertainty.

"A couple of articles were published in the Wall Street Journal and the Financial Times suggesting that a 50-bps move was still in play, which has led markets to once again reevaluate their expectations," Deutsche Bank analysts said.

The Russell 2000 small cap index, which tends to benefit in a lower-rate environment, outperformed with a 2.2% jump.

The market has been seeing a reversal in U.S. equity positioning over the past three days and investors are going long heading into the Fed meeting, said Michael James, managing director of equity trading at Wedbush Securities.

Bets of the Fed sticking to a smaller 25-bps cut had firmed on Thursday following a slightly higher producer prices report that followed the August consumer prices data.

All 11 S&P 500 sectors edged higher on Friday, led by a 1.2% rise in materials stocks that tracked an increase in the prices of precious metals.

Meanwhile, a survey showed U.S. consumer sentiment improved in September amid subsiding inflation, though Americans remained cautious ahead of the November presidential election.

All the three major U.S. benchmark indexes were trading near a two-week high, on track to log solid weekly gains.

The Dow Jones Industrial Average rose 343.71 points, or 0.84%, to 41,440.48, the S&P 500 gained 31.29 points, or 0.56%, to 5,627.15 and the Nasdaq Composite gained 112.80 points, or 0.64%, to 17,682.47.

The Philadelphia SE Semiconductor index rose 1.4% to levels last seen on Sept. 2, with most chip stocks trading higher.

Among individual movers, Boeing pared losses and was last down 0.5% as its U.S. West Coast factory workers walked off the job early on Friday after overwhelmingly rejecting a contract deal.

Adobe slid 9.3% to a one-month low after forecasting fourth-quarter earnings below analysts' estimates, while Oracle jumped 2.7% after the cloud computing company raised its fiscal 2026 revenue outlook.

Chinese e-commerce firm PDD Holdings lost 2.3% after the Biden administration said it was moving to curb low-value shipments entering the U.S. duty-free under the $800 "de minimis" threshold.

Uber gained 4.9% after the ride-hailing platform said it would bring autonomous ride hailing to Austin, Texas, and Atlanta, in partnership with Alphabet's Waymo.

Advancing issues outnumbered decliners for a 6.71-to-1 ratio on the NYSE and a 3.62-to-1 ratio on the Nasdaq.

The S&P 500 posted 50 new 52-week highs and no new low, while the Nasdaq Composite recorded 87 new highs and 36 new lows.

(Reporting by Shashwat Chauhan and Purvi Agarwal in Bengaluru; Editing by Shounak Dasgupta)