Gains in Wall Street indexes on Friday were not enough to erase a loss for the week while resilient consumer spending supported longer-dated Treasury yields and gold rose as a steady inflation reading supported bets on future Federal Reserve rate cuts.
Consumer spending climbed slightly more than expected in August while the inflation rate rose to 2.7% from 2.6% in July, data showed, in line with economists' expectations.
Analysts said some companies had fended off price pressures by stockpiling in anticipation of tariffs, but some volatility was to be expected ahead of corporate earnings releases in the coming weeks.
"Corporates have been able to withstand (a) tariff hit because they've had inventory build. But the earnings season will become the bigger test because many companies have told us they will start some price increases around the end of the year," said Kevin Gordon, senior investment strategist at Charles Schwab.
The Dow Jones Industrial Average rose 0.65%, the S&P 500 rose 0.59% and the Nasdaq Composite was up 0.44%.
Individual stocks responded to fresh White House tariffs on goods including pharmaceuticals and trucks. Paccar, which makes most of its trucks for the U.S. market domestically, gained 5%, and drugmaker Eli Lilly rose 1.5%.
Richmond Fed Bank President Thomas Barkin told Bloomberg Television he had very low confidence in inflation forecasts, as tariffs continue to impact the economy.
The prospect of a potential government shutdown is also adding uncertainty and could disrupt the data releases that investors follow closely for guidance.
NOT FALLING OFF A CLIFF
Friday's personal consumption expenditures index functions as a key component of the Federal Reserve's inflation outlook.
U.S. Treasury yields, which influence borrowing costs, moved little after the data was released.
The yield on benchmark U.S. 10-year notes rose 0.7 basis points to 4.181%, from 4.174% late on Thursday. The 30-year bond yield rose 0.5 basis points to 4.7576% from 4.753% late on Thursday.
"The one bright spot was that income and spending were a little bit firmer than expected, which means the consumer isn't falling off a cliff as the market was expecting," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.
Gold, a safe haven which usually benefits from lower interest rates, broadly held on to recent gains. Spot prices were last quoted 0.46% higher at $3,766.25 an ounce.
Investors now estimate an 89.8% probability of a rate cut in October and a 67% chance of another in December, the CME FedWatch Tool shows.
The Fed made its first interest rate cut of the year last week, and signalled further easing was to come. Fed Chair Jerome Powell offered little more direction at a speech on Tuesday, saying the central bank needed to continue balancing, opens new tab the risk of high inflation against a weakening job market.
Oil prices rose as Ukrainian drone attacks on Russia infrastructure cut the major energy producer's exports.
Brent futures settled at $70.13 a barrel, up 71 cents, or 1.02%. U.S. West Texas Intermediate (WTI) crude finished at $65.72 a barrel, gaining 74 cents, or 1.14%.
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