Stocks rose out of the gate Thursday and kept climbing into the close as the latest inflation data all but guaranteed the Federal Reserve will resume rate cuts at its meeting next week.
Ahead of the open, data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) was up 0.4% month over month in August, higher than the 0.2% rise seen in July and the 0.3% increase economists expected.
The CPI was 2.9% higher year over year, a quicker pace than the month prior and the largest annual increase since January. Still, the results arrived in line with estimates.
Core CPI, which excludes volatile food and energy prices and is seen as a better measure of underlying inflation trends, was up 0.3% month over month and 3.1% year over year. Both figures matched what was seen in the July CPI report, as well as economists' forecasts.
"We continue to expect the Fed will cut rates next week due to weak labor market data and think it could follow this up with further easing in October," says Simon Dangoor, head of Fixed Income Macro strategies at Goldman Sachs Asset Management.
Dangoor adds that while "near-term inflationary pressures remain high, and further strong readings are likely in the coming months as businesses run down inventories and pass on cost rises, the Fed is likely to draw comfort from anchored inflation expectations and the absence of overheating in the labor market, which reduce the risks of second-round effects."
Weekly jobless claims hit their highest level in almost four years
As for that weak employment data, the Labor Department this morning said weekly jobless claims climbed by 27,000 last week to a seasonally adjusted 263,000. This is the highest level since October 2021.
Bill Adams, chief economist at Comerica Bank, says this week's initial claims update "should be taken with a larger-than-usual grain of salt" given the volatile nature of the data and the fact that the latest update coincided with the Labor Day holiday and the start of the school year.
"Even so," he notes, "after the downward revisions to payrolls announced earlier this week and the weak jobs report for August last week, the job market is looking the wobbliest since the pandemic."
CME FedWatch shows that futures traders are now pricing in a 95% chance the Federal Reserve will lower the federal funds rate by 25 basis points (0.25%) when it concludes its meeting next Wednesday afternoon.
The probability for a 50 basis point cut has risen to 51% from zero one week ago.
Micron pops on new price target
In single-stock news, Micron Technology (MU) shares surged 7.6% after analysts at Citi reiterated their Buy rating on the memory chipmaker and raised their price target to $175 from $150. The new target price represents implied upside of nearly 17% to current levels.
It's already been a banner year for MU, which is up more than 80%. And Citi thinks the semiconductor stock has more room to run thanks to increased demand for its dynamic random-access memory (DRAM) chips, "particularly from the data center end market."
Citi also believes Micron will provide strong guidance when it makes an appearance on the earnings calendar later this month on "higher DRAM and NAND sales and pricing."
Amazon is a top pick on its $600 billion grocery opportunity
Amazon.com (AMZN, -0.2%) was also in focus Thursday after Morgan Stanley analyst Brian Nowak added the Dow Jones stock to its "top pick" list.
"We see AMZN's push into the roughly $600 billion fresh grocery market unlocking durably faster growth," Nowak wrote in a note to clients.
While Amazon will not capture all of that potential market share for consumer spending on fresh foods and perishables, every 1% it does get will boost the analyst's fiscal 2026 gross merchandise volume forecast by roughly 120 basis points.
Nowak admits that the logistics to deliver perishables is "challenging," but he believes that Amazon is preparing to more than double its reach – to 2,300 cities by year's end – by retrofitting existing fulfillment centers and adding new ones that have cold storage capabilities.
"Further, longer-term, capturing more consumer data in this critical grocery category (purchase behaviors, brand affinities, etc.) is going to be important to AMZN's efforts to create next generation agentic grocery offerings," Nowak says.
As for the main indexes, the blue chip Dow Jones Industrial Average finished up 1.4% at 46,108, the broader S&P 500 added 0.9% to 6,587, and the tech-heavy Nasdaq Composite gained 0.7% to 22,043. All three ended at new record closing highs.
