Stock Market Today: Dow Nabs Record High Ahead of Labor Day

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Stocks were choppy Friday as volume thinned out ahead of the long holiday weekend. As a reminder, Monday is a stock market holiday, with both the equities and bond markets closed for Labor Day. Today, though, investors took in a not-too-terrible update on inflation and a round of concerning retail earnings.

Starting with the economic data. All eyes were on this morning's release of the Personal Consumption and Expenditures (PCE) Price Index, the Fed's preferred inflation measure, which rose 0.2% month-over-month in July and was up 2.5% year-over-year. Core PCE, which excludes volatile food and energy prices, increased 0.2% on a monthly basis and was up 2.6% from the year-ago period.

The data also showed that personal income rose at a slightly higher-than-expected 0.3% rate, while the 0.5% increase in consumer spending matched economists' forecasts.

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"Regarding this morning's PCE that came in as expected, no news is good news," said Gina Bolvin, president of Bolvin Wealth Management Group, in a statement. "The runway is all clear for the Fed to cut rates in September. The only question is if the cut will be 0.25% or 0.50%."

According to CME Group's FedWatch Tool, futures traders are currently pricing in a 69.5% chance the central bank will lower the federal funds rate by a quarter-percentage point at its next meeting. Odds for a half-percentage-point cut are at 30.5%.

Elsewhere, data from the University of Michigan showed its Consumer Sentiment Index rose to 67.9 in August from 66.4 in July. The survey also showed that households' one-year inflation expectation now sits at 2.8%, down from 2.9% in July. The five-year inflation expectation remained unchanged at 3%.

Wall Street says buy the dip on Ulta

In single-stock news, Ulta Beauty (ULTA) stock sank 4% after the beauty retailer came up short of top- and bottom-line expectations for its second quarter and lowered its full-year outlook.

However, this is just more of the same for the consumer discretionary stock. While shares got a short-lived boost earlier this month on news Ulta was added to Warren Buffett's Berkshire Hathaway equity portfolio in Q2, they remain 28% lower for the year to date.

Still, Oppenheimer analyst Rupesh Parikh (Outperform, the equivalent of a Buy) "looks favorably on ULTA's long-term prospects," citing the company's differentiated offerings, potential to deliver above-average growth rates in retail, and strong management as some of the reasons he is bullish.

"We continue to view ULTA shares as appropriate for longer-term players and would take advantage of any dips from here," Parikh adds.

Lululemon slips after top-line miss

Lululemon Athletica (LULU) stock edged up 0.2% after the athleisure company reported lower-than-expected revenue for its second quarter and cut its full-year outlook due to "uncertainties in the macro environment."

Wall Street doesn't seem too worried about LULU's short-term struggles. "Lululemon has a strong brand and growing e-commerce sales, which we expect will lead to higher margins over the next several years," says Argus Research analyst John Staszak, who maintained a Buy rating on the stock after earnings. "In all, we believe that the company's prospects are among the best in the apparel sector."

As for the main indexes, the Dow Jones Industrial Average rose 0.6% to 41,563 – good for a new record closing high – the S&P 500 added 1.0% to 5,648, and the Nasdaq Composite gained 1.1% to 17,713. Stocks closed mixed on the week, but higher on the month.

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With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.

With contributions from