Wall Street gains as traders raise bets on 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 47% 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.

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.

"Markets want the FOMC to ease fast and get on with the risk of recession fighting. The meeting is a risky event and it will remain so regardless of the 25 or 50 bps easing next week," said Bob Savage, head of markets strategy and insights at BNY Mellon.

All major U.S. benchmarks had closed higher in the previous session, boosted by rising megacap stocks, keeping them on track for weekly gains.

The Dow Jones Industrial Average rose 229.80 points, or 0.56%, to 41,326.57, the S&P 500 gained 21.06 points, or 0.37%, to 5,616.51, and the Nasdaq Composite gained 54.40 points, or 0.31%, to 17,624.08.

The economically sensitive Russell 2000 small cap index was up 1.5%.

Ten of the 11 S&P 500 sectors inched higher, led by a 0.9% rise in materials stocks that tracked an increase in the prices of precious metals.

The Philadelphia SE Semiconductor index rose 1.3% to levels last seen on Sept. 2, with most chip stocks trading higher.

Meanwhile, a preliminary reading of the University of Michigan's September consumer sentiment index stood at 69 compared with analysts' estimates of 68.5.

Among individual movers, Boeing fell 2.6% as its U.S. West Coast factory workers walked off the job early on Friday after overwhelmingly rejecting a contract deal.

Adobe slid 9% 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 dropped 2.4% 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 5.7% 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 6.86-to-1 ratio on the NYSE and a 3.44-to-1 ratio on the Nasdaq.

The S&P 500 posted 45 new 52-week highs and no new low, while the Nasdaq Composite recorded 66 new highs and 27 new lows.

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