Dow hits record high on tame inflation report that also boosts small caps

By Echo Wang

(Reuters) -The blue-chip Dow Jones Industrial Average hit a new record high on Friday as investors cheered a tame inflation report that also boosted small-cap stocks which should benefit from lower interest rates.

Wall Street's benchmark S&P 500 index dipped, as did the technology-heavy Nasdaq composite, but both remained near record highs hit in recent sessions. All three indexes were poised to secure their third consecutive week of gains.

“The market at this point..(is) pretty much pricing in a soft landing, and pricing in that we have defeated inflation, and that the Fed will be able to lower rates without causing a bunch of harm to the economy”, said Liz Young Thomas, head of investment strategy at SoFi in New York.

The Commerce Department reported a moderate rise in consumer spending while inflation pressures continued to ease. Separately, the University of Michigan's final September reading on consumer sentiment came in at 70.1, surpassing economists' expectations of 69.3, according to a Reuters poll.

At 2:21 p.m. the Dow Jones Industrial Average was up 191.49 points, or 0.45%, to 42,366.60, the S&P 500 dipped 3.51 points, or 0.06%, to 5,741.78 and the Nasdaq Composite slipped 58.08 points, or 0.32%, to 18,132.02.

The Russell 2000 index, which tracks small caps that fare better in a low rate environment, gained 1.5% to a one-week high.

Eight out of the 11 S&P 500 sectors were higher, led by a 1.61% rise in energy stocks, while technology stocks declined 0.97%.

Nvidia lost 2.56%, weighing on a dip on the technology-heavy Nasdaq.

Investors now slightly favor a bigger 50 basis point cut at the Fed's next meeting with a 52.1% chance, up from a coin toss before the data, as per the CME Group's FedWatch Tool.

Cooling price pressures prompted the Fed to cut rates by 50 bps last week. Focus will now shift to a slew of labor market reports due next week.

Markets will parse through remarks from Fed Governor Michelle Bowman later in the day.

Late on Thursday, Fed Governor Lisa Cook said the central bank's rare move earlier this month could address increased "downside risks" to employment.

Among individual stocks, Bristol-Myers Squibb surged 2.63% after the U.S. FDA approved its schizophrenia drug.

Costco Wholesale dropped 1.92% after posting downbeat fourth-quarter revenue.

U.S.-listed shares of Chinese firms such as Alibaba rose 2.99%, PDD Holdings climbed 3.63% and NetEase gained 2.73% after China's central bank lowered interest rates and injected liquidity into the banking system.

The optimism spilled over to miners such as Arcadium, which added 2.31%, and U.S.-listed shares of BHP rose 1.83%.

Advancing issues outnumbered decliners by a 1.99-to-1 ratio on the NYSE. There were 519 new highs and 24 new lows on the NYSE.

The S&P 500 posted 40 new 52-week highs and no new lows while the Nasdaq Composite recorded 70 new highs and 59 new lows.

(Reporting Echo Wang in New York; Additional Reporting by Johann M Cherian and Purvi Agarwal in Bengaluru; Editing by Anil D'Silva, Maju Samuel and David Gregorio)