Markets climb as the Fed's favored inflation gauge cools

Dow shot up 439, advancers over decliners better than 4-1 & NAZ surprisingly fell 46.  The MLP index rebounded 1+ to the 283s & the REIT index rose about 3 to 438.  Junk bond funds were little changed & Treasuries saw a little buying which took yields slightly lower (more below).  Oil added chump change to 67 & gold slid back 11 to 2683.

Dow Jones Industrials

An inflation gauge closely watched by Federal Reserve policymakers continued to slow in Aug as the pace of price growth trended closer to the Fed's target.  The Commerce Dept reported that the personal consumption expenditures (PCE) price index rose 0.1% from the prior month & 2.2% year over year.  The annual figure came in cooler than the estimate.  Core PCE, which excludes volatile food & energy prices, rose 0.1% for the month & increased 2.7% from a year ago, in line with estimates & little changed from a month ago.  The Federal Reserve is focusing on the PCE headline figure as it tries to bring the pace of price increases back to 2%, although policymakers view the core data as a better indicator of inflation.  Both the core & headline figures suggest that inflation is continuing to cool.  The headline PCE data showed that prices for goods decreased 0.2% while prices for services increased 0.2% on a monthly basis in Aug.  Food prices rose 0.1% & energy prices decreased 0.8% from a month ago.  Compared with last Aug, prices for goods are down 0.9% while prices for services are up 3.7%.  Food prices are up 1.1% & energy prices are down 5% from a year ago.  The report also showed that wages & salaries were up 0.5% in Aug, showing slightly faster growth than the 0.3% increase in Jul, but notably slower than the 1% monthly gain seen in Jan.  It also found that the personal savings rate as a percentage of disposable income was 4.8% in Aug, down slightly from the 4.9% reading a month ago & 5.5% in Jan.

Inflation measure closely watched by the Fed fell to 2.2% in August

The Food & Drug Administration approved Bristol Myers Squibb's (BMY) highly anticipated schizophrenia drug Cobenfy, the first novel type of treatment for the debilitating, chronic mental disorder in more than 7 decades.  Schizophrenia affects how a person thinks, feels & behaves & can cause paranoia, delusions, hallucinations & changes in emotions, movements & behavior.  Those symptoms can disrupt a patient's everyday life, making it difficult to go to school or work, socialize & complete other daily activities.  Most people are diagnosed in their late teens to early 30s.  BMY expects the twice-daily pill, which will be sold under the brand name Cobenfy, to be available in late Oct.  The drug is a badly needed new option for the nearly 3M adults in the US living with schizophrenia, some medical experts say.  Only 1.6M of those patients are treated for the condition & 75% of them stop taking existing medications in the first 18 months because they struggle to find treatments that are effective or easy for them to tolerate, according to the drugmaker.  Cobenfy could also be a huge long-term sales opportunity for BMY, which faces pressure to offset the potential loss of revenue from top-selling treatments that will see their patents expire. The drug comes from the company's whopping $14B acquisition of biotech company Karuna Therapeutics at the end of last year.  Cobenfy will cost $1850 for a month's supply or $22K annually before insurance & other rebates, BMY execs said.  They said that pricing is in line with existing branded oral schizophrenia treatments & that they expect most patients, particularly those enrolled in Medicare & Medicaid plans, to have minimal out-of-pocket costs for the drug.  Around 80% of patients living with the condition are covered by gov insurance, according to BMY.  The stock rose 1.49.

FDA approves Bristol Myers Squibb’s schizophrenia drug, the first new type of treatment in decades

Treasury yields dipped after the release of key inflation data that showed the rate of price increases is close to the Federal Reserve’s target.  The yield on the 10-year Treasury was down about 3 basis points at 3.756% & the 2-year Treasury yield was last at 3.586% after falling nearly 4 points.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  Investors focused on the release of Aug's personal consumption expenditures price index, which is the Federal Reserve's preferred inflation gauge & could therefore provide clues about the monetary policy outlook.  The PCE data comes as investors have been giving renewed attention to the state of the economy after the Fed announced a hotly anticipated interest rate cut earlier in the month.  Data published yesterday calmed questions about whether there could be an economic downturn ahead & indicated to some investors that the Fed's reasoning for cutting rates was not a weakening economy.  The final reading of the 2nd-qtr gross domestic product was unrevised, remaining at 3%, while weekly initial jobless claims pulled back by more than expected & durable goods orders for Aug were unchanged compared to the forecast decline. 

Treasury yields ease after tame inflation reading

Investors welcomed an inflation report seen as crucial to the Federal Reserve's next decision on interest rate cuts.  The "core" PCE index, which is most closely watched by policymakers, came in lower than forecasts.  Confidence in the economy returned to the market.  A solid GDP reading, combined with continued cooling in inflation, has signaled a growing conviction that the Fed can nail a soft landing as it embarks on a rate-cutting campaign.  However tech stocks on NAZ did participate in today's rally.