The single-biggest force driving Wall Street’s stocks since a week is the likelihood that the US Federal Reserve will cut interest rates at its next meeting on September 17 to boost the economy.
The S&P 500 rose 0.8 per cent and set an all-time high for the third straight day, while the Dow Jones Industrial Average rallied 617 points, or 1.4 per cent, and the Nasdaq composite gained 0.7 per cent – both also hitting records.
“What's moving markets now isn't just another rally, it's the unmistakable shift of a dovish Fed tide, the kind that doesn't rise in isolation but swells across oceans, lifting virtually every boat in every harbour,” said Stephen Inness of SPI Asset Management in a market commentary.
Stocks of companies that could benefit from lower interest rates rallied on Wall Street, including owners of real estate and homebuilders.
Inflation data that poured in on Thursday showed a continuous rise in prices for US households than the Fed's expected 2 per cent target, but no more than economists expected. Consumers paid prices for food, gasoline and other costs of living that were 2.9 per cent higher in August than a year earlier, a slight acceleration from July's 2.7 per cent inflation rate.
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Wall Street has been hoping for a slowdown, but a measured one that shows a weak job market so that the Fed cuts interest rates to give the economy a kickstart, but not so much that it causes a recession. Lower interest rates can push inflation even higher but traders believe the Fed will see the slowing job market as the bigger problem than inflation.
So far, the Fed had been hesitant to cut interest rates because of the threat that President Donald Trump's tariffs could make inflation worse.
Meanwhile, treasury yields also eased in the bond market following the economic reports.
Asian shares too mirrored Wall Street’s rally, with Japan's Nikkei 225 setting another intra-day high and rising for the third day to add 0.9 per cent to 44,781.09. Shares in semiconductor company Tokyo Electron, Sony Group and Fast Retailing were among the movers.
In Chinese markets, Hong Kong's Hang Seng index rose 1.5 per cent to 26,484.65, lifted by a report that Beijing may order state banks to help cover unpaid bills of local governments. The Shanghai Composite index inched 0.2 per cent to 3,877.38 In Seoul, the Kospi climbed 1.3 per cent to 3,387.02 while Australia's S&P/ASX 200 added 0.7 per cent to 8,867.90. India's BSE Sensex rose 0.3 per cent while Taiwan's Taiex was up 0.6 per cent.
In other dealings on Friday, benchmark US crude shed 53 cents to $61.84 per barrel. Brent crude, the international standard, slipped 51 cents to $65.86 per barrel.
The US dollar rose to 147.51 yen from 147.15 yen. The euro slid to $1.1729 from $1.1740
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