Wall Street ended mixed on Wednesday after US inflation came in below expectations, easing bets on another Federal Reserve rate hike in October while stronger economic data continued to support the outlook for growth.
The Nasdaq Composite rose 0.24% to 26,861.06, while the S&P 500 slipped 0.25% to 7,651.54. The Dow Jones Industrial Average fell 0.86% to 50,906.05.
The S&P 500 and Nasdaq still recorded their second consecutive quarterly gains, with both benchmarks advancing for the fifth time in the past six quarters. The Dow, meanwhile, posted its second quarterly decline in three quarters.
The US Commerce Department reported that the Personal Consumption Expenditures Price Index rose 3.4% year-on-year in August, below the 3.7% increase expected by economists polled by Reuters.
Markets reacted by sharply reducing expectations for another Fed rate increase next month. CME’s FedWatch Tool showed a roughly 37% chance of a hike of at least 25 basis points at the October meeting, down from 51% in the previous session and nearly 71% a week earlier.
However, Treasury yields moved higher towards the close, with the two-year yield turning slightly higher while longer-dated yields continued to rise on expectations for solid economic growth.
US gross domestic product also received an upward revision, with the economy expanding at a 2.2% annualised rate in the second quarter, supported by consumer spending and investment in artificial intelligence infrastructure.
“What the market is focused on is, is the economy continuing to grow and can it manage those higher interest rates? And I would say so far, the market has looked kind of like history that when the economy is growing, when profits are strong, when there’s a secular theme, it will look past higher interest rates,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial.
“However… if these higher rates stay at these elevated levels for longer, it’s likely to start doing potentially more damage to the bond side of the portfolio, it could limit credit or available credit. And if investors start to feel those conditions could weigh on economic growth or weigh on corporate profitability over the next quarter or two, then I think you would see a very swift negative reaction in the market.”
Technology stocks provided some support, with Microsoft, Apple and Nvidia among the megacap shares gaining. The S&P 500 technology index rose 0.6%, making it the best-performing sector, although nine of the index’s 11 major sectors ended lower.
The labour market also showed signs of resilience. Private employment increased by 90,000 jobs in September after a downwardly revised 36,000 gain in August, according to the ADP National Employment Report. The data comes ahead of Friday’s key government payrolls report.
Fed Governor Lisa Cook said she remained committed to bringing inflation down without damaging the labour market, adding that price pressures had remained too high for too long.
Among individual stocks, Hewlett Packard Enterprise rose 3.9% after raising its long-term revenue growth forecast for its networking business and announcing a US$1.2 billion deal with cloud company Vultr.
Moderna fell 5.3% after Citigroup downgraded the biotech company to “sell” from “neutral”.
For September, the S&P 500 fell 0.45%, while the Nasdaq gained 1.86% and the Dow declined 4.29%. The Dow ended a five-month winning streak, while the Nasdaq posted its second consecutive monthly gain.
