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PCE inflation rises moderately in June

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Russell 2000 gains for fourth day in five

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Deckers, Baker Hughes ( BKR ) climb after results

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Dexcom ( DXCM ) slips after cutting revenue forecast

(Updates to close)

By David French

July 26 (Reuters) - Wall Street's major indexes closed

higher on Friday, recouping some ground lost earlier this week,

as investors flocked back to tech megacaps that had triggered

broad sell-offs and inflation data boosted optimism that

interest rate cuts will soon begin.

The Dow Jones Industrial Average led the way, aided

by industrial conglomerate 3M ( MMM ), which jumped to its

largest daily percentage gain in decades after it raised the

lower end of its annual adjusted profit forecast.

The S&P 500 and Nasdaq Composite also

finished the week stronger, aided by rebounds in megacap stocks

that led the indexes' declines in the two prior sessions.

Members of the so-called Magnificent Seven mostly rose, led

by Meta Platforms ( META ).

Chip stocks also rose, helping the Philadelphia SE

Semiconductor index snap a three-day losing streak.

Constituents Marvell Technology ( MRVL ), Broadcom ( AVGO ),

Texas Instruments ( TXN ) and Qualcomm ( QCOM ) each advanced.

The 10-year Treasury yield turned lower

following the inflation data.

Economically sensitive small-cap stocks rose, with the

Russell 2000 and S&P Small Cap 600 both advancing

to their fourth closing highs of the week.

The moderate rise in U.S. prices underlined an improving

inflation environment, potentially positioning the Fed to start

easing policy in September. The central bank's July monetary

policy decision is due next week.

Bets on a 25-basis-point cut at the Fed's September meeting

held steady at about 88% after the PCE reading, according to

CME's FedWatch. Traders still largely expect two rate cuts by

December, LSEG data showed.

Greg Boutle, head of US equity & derivative strategy at BNP

Paribas, noted that the many factors at play helped to explain

why markets were susceptible to periods of volatility, including

this week.

"It's been a bit challenging for people to read what's

going on because there is (portfolio) positioning, elections,

CPI and the Fed, and earnings season, and these things are all

pulling in slightly different directions," he said.

According to preliminary data, the S&P 500

gained 61.06 points, or 1.11%, to end at 5,460.28 points,

while the Nasdaq Composite gained 176.16 points, or

1.03%, to 17,357.88. The Dow Jones Industrial Average

rose 658.54 points, or 1.66%, to 40,593.61.

Worries about Wall Street's growing dependence on a set of

high-momentum stocks, whose valuations now appear inflated, have

made underperforming sectors like mid- and small-cap stocks seem

more attractive, now that early rate cuts seem likely.

Industrials and Materials were among the

leaders across the S&P 500 sector indexes.

Among stocks boosted by earnings, Deckers Outdoor ( DECK )

jumped after it raised its annual profit forecast, while

oilfield services firm Baker Hughes ( BKR ) climbed after

beating estimates for second-quarter profit.

Norfolk Southern ( NSC ) soared after the rail operator

reported second-quarter profit above Wall Street estimates

thanks to robust pricing.

Medical device maker Dexcom ( DXCM ) slumped after cutting

its annual revenue forecast.

Of the 206 companies in the S&P 500 that have reported

second-quarter earnings, 78.6% beat analysts' expectations, LSEG

data showed.