Wall Street’s three-week winning streak came to an end despite a late-week rally on Friday, as investors weighed stronger-than-expected consumer spending data, steady inflation readings, and the impact of fresh White House tariffs.
The Dow Jones Industrial Average climbed 0.65%, the S&P 500 added 0.59%, and the Nasdaq Composite advanced 0.44% in Friday’s session. However, the gains were not enough to erase losses for the week, as markets remained cautious ahead of the corporate earnings season.
Consumer spending data for August came in slightly above expectations, while inflation ticked up to 2.7% from 2.6% in July, aligning with economists’ forecasts. Analysts say that although many companies have stockpiled inventory to cushion the blow from tariffs, price increases could soon begin filtering through to consumers.
“Corporates have been able to withstand the tariff hit because they’ve had inventory build,” said Kevin Gordon, senior investment strategist at Charles Schwab. “But earnings season will become the bigger test.”
Individual stocks reacted sharply to the new tariffs. Paccar surged 5% thanks to its mostly domestic truck production, while pharmaceutical giant Eli Lilly gained 1.5%.
Treasury yields were steady after the data release. The 10-year note yield edged up to 4.181%, while the 30-year bond yield rose slightly to 4.7576%.
“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,” noted Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.
Gold prices held onto recent gains, with spot gold trading 0.46% higher at $3,766.25 an ounce, as investors priced in a high probability of additional rate cuts. According to the CME FedWatch Tool, markets now expect an 89.8% chance of an October cut and a 67% probability of another in December.
Meanwhile, oil prices firmed after reports of Ukrainian drone strikes on Russian infrastructure disrupted exports. Brent crude settled at $70.13 a barrel (+1.02%), while U.S. WTI crude closed at $65.72 a barrel (+1.14%).
With the Federal Reserve having delivered its first rate cut of the year last week and signaling more to come, investors are now watching for clues from corporate earnings and Washington as a potential government shutdown looms.