June 28 (Reuters) - The Nasdaq and the S&P 500 touched record highs on Friday after an in-line inflation report strengthened hopes for interest rate cuts in September, while Nike was set for its steepest one-day fall in over two decades after a gloomy forecast.
Data showed U.S. monthly inflation was unchanged in May, an encouraging development after the strong price increases earlier this year raised doubts over the efficiency of the Federal Reserve's monetary policy.
The Commerce Department report also showed consumer spending rose marginally last month, fueling optimism that the central bank could engineer a much-desired "soft landing" for the economy.
Bets of a rate cut in September picked up after the data, last standing at near 66%, LSEG FedWatch data showed.
"We've been expecting some cooling in PCE numbers for quite some time and it has taken longer than we expected, but it now confirms that the inflationary pressure is cooling off a bit and that should be a positive for risk assets, especially equity markets," said Bel Air Investment Advisors' chief investment officer, Arun Bharath.
Traders have held their bets of two cuts despite Fed projections of just one this year, hoping for a sustained downtrend in inflation and as the economy remains susceptible to decades-high interest rate.
The S&P 500 information technology index (.SPLRCT), was the top sectoral gainer, while utilities (.SPLRCU), fell to the bottom with a 1% decline.
Top chip stock Nvidia (NVDA.O), firmed 1.5%, while others including Marvell Technology (MRVL.O), Qualcomm (QCOM.O), Applied Materials (AMAT.O), and Intel (INTC.O), rose 1.1%-3%, helping the Philadelphia SE Semiconductor index (.SOX), opens new tab gain 1.9% to a one-week high.
However, some megacaps fell after Treasury yields reversed their early course and inched up. Meta Platforms (META.O), Alphabet (GOOGL.O), and Amazon.com (AMZN.O), were down between 0.6% and 1%.
Further, San Francisco Fed President Mary Daly acknowledged the cooling inflation, and noted that it's "good news that policy is working."
Among others, Nike (NKE.N), slumped 18.9% after forecasting a surprise drop in fiscal 2025 revenue, weighing on the broader consumer discretionary sector (.SPLRCD).
At 11:56 a.m. ET, the Dow Jones Industrial Average (.DJI), was up 61.15 points, or 0.16%, at 39,225.21, the S&P 500 (.SPX), was up 14.70 points, or 0.27%, at 5,497.57, and the Nasdaq Composite (.IXIC), was up 55.05 points, or 0.31%, at 17,913.74.
Investors also geared up for the final reconstitution of the Russell benchmark indexes during the day.
Both the S&P 500 and the Nasdaq were set for gains in a week marked by a short-lived rout in AI-related stocks, Amazon.com hitting $2 trillion market value for the first time, some quarterly earnings, and a mixed bag of economic data.
While the two indexes were set for quarterly gains, the Dow (.DJI), was set to end the quarter down 1%, highlighting the divergence between the more tech-heavy indexes and the rest of the market.
Among individual stocks, optical networking gear maker Infinera (INFN.O), jumped 18.3% after Nokia (NOKIA.HE), said it would acquire the company in a $2.3 billion deal.
Advancing issues outnumbered decliners by a 1.73-to-1 ratio on the NYSE and by a 1.32-to-1 ratio on the Nasdaq.
The S&P index recorded 15 new 52-week highs and one new low, while the Nasdaq recorded 46 new highs and 82 new lows.
Reporting by Ankika Biswas and Lisa Mattackal in Bengaluru; Editing by Maju Samuel
