The stock market is higher Friday as investors lean back toward a 75-basis-point Fed hike this month.
The Dow (DJI) is +1.9%, the S&P (SP500) is +1.7%, and the Nasdaq (COMP.IND) is +1.4%.
Ten of 11 S&P sectors are higher, led by Financials as banks surge post earnings. Utilities is the only decliner.
“It has been a volatile week for interest rate expectations ahead of the July 27th FOMC meeting, but the final sets of data showing reasonable retail sales yet falling inflation expectations, lower import price inflation and the second consecutive fall in manufacturing suggests a 75bp hike is the most likely outcome,” ING said.
The major averages popped off lows after preliminary Michigan sentiment numbers came out. While the healine index rose unexpectedly to 51.1, it was a drop in inflation expectations that helped sentiment the most.
Inflation expectations over the next 5-10 years, which the Fed says it is watching, dropped to 2.8% from 3.1%.
Rates moved down. The 10-year Treasury yield is down 3 basis points to 2.93% and the 2-year yield is down 3 basis points to 3.12%.
CME FedWatch now puts the chance of a 75-basis-point hike at 60%.
Earlier, Atlanta Fed President Raphael Bostic bolstered the case for 75 basis points, saying the last hike was a “big move” and the Fed wants to move in an orderly fashion and not hike “too dramatically.”
Elsewhere in economic data, retail sales and core retail sales rose 1% in June, topping forecasts. But gas and food prices were big contributors to the gains.
“Our preferred measure of core sales, which strips out autos, gasoline and food, rose at an 8.0% annualized rate in Q2, slowing only slightly from the 9.1% leap in Q1, and more than enough to signal a meaningful increase in real sales,” Pantheon Macro said. “In short, people did not fold in the face of the Ukraine shock and the subsequent surge in food and energy prices. Instead, they ran down a small part of their pandemic savings in order to keep up their discretionary spending, and we think they’ll do the same in Q3.”
Among active stocks, Citi is the top S&P gainer following its big earnings beat.
Read More: Dow Jones, Nasdaq, S&P 500 rally as investors game Fed hike odds