US stocks: S&P 500 dips, Nasdaq higher after data shows moderate inflation rise

[NEW YORK] The Nasdaq climbed on Wednesday (Sep 30) and the S&P 500 dipped, but both indexes notched their second straight quarterly gains, as a softer-than-anticipated inflation reading cooled expectations that Federal Reserve policymakers would hike rates in October.

The US Commerce Department reported the Personal Consumption Expenditures Price Index (PCE) increased 3.4 per cent on an annual basis in August, below the 3.7 per cent estimate of economists polled by Reuters.

Separately, the final reading of second-quarter GDP data was revised higher to a 2.2 per cent annualised rate, thanks to solid consumer spending and investments helping to fuel the buildout of AI infrastructure.

The rising prices of crude oil from the US-Iran war and sky-high diesel fuel costs have stoked inflation worries and pushed US Treasury yields higher. Fed officials have indicated more rate hikes might be needed if price pressures fail to moderate after the central bank raised interest rates by 25 basis points this month.

Stocks lost ground heading into the closing bell, however, as the 2-year US Treasury note yield, which typically moves in step with Fed interest-rate expectations, turned slightly higher on the day. Longer-dated yields kept climbing on expectations for solid economic growth.

Market expectations for a rate hike of at least 25 basis points at the Fed’s October meeting slumped to about 37 per cent, according to CME’s FedWatch Tool, from roughly 51 per cent in the prior session and nearly 71 per cent a week ago.

Analysts also noted that recent methodology changes in calculating PCE by the Bureau of Economic Analysis contributed to a lower reading.

“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 in Troy, Michigan.

“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.”

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S&P, Nasdaq notch quarterly gains

The Dow Jones Industrial Average fell 443.87 points, or 0.86 per cent, to 50,906.05, the S&P 500 lost 19.30 points, or 0.25 per cent, to 7,651.54 and the Nasdaq Composite gained 63.52 points, or 0.24 per cent, to 26,861.06.

The S&P had risen as much as 0.7 per cent while the Nasdaq had climbed as much as 1.2 per cent on the session.

For the month, the S&P 500 fell 0.45 per cent, the Nasdaq rose 1.86 per cent, and the Dow fell 4.29 per cent. The Dow snapped a five-month streak of gains while the S&P fell for the third month in four. The Nasdaq gained for a second straight month.

Both the S&P 500 and Nasdaq recorded their second straight quarterly advances and fifth in the past six. The Dow saw a quarterly decline for the second time in three.

Most megacap and growth stocks ticked higher, with Microsoft, Apple and Nvidia each rising ato lifting the S&P 500 tech index 0.6 per cent as the best-performing sector on the day. However, nine of the 11 major S&P sectors ended the day lower.

Private payrolls rise in September

A reading on the labour market showed private employment rose by 90,000 jobs this month after a downwardly revised 36,000 in August, the ADP National Employment Report showed. The data was the latest in a string of reports on the job market this week that will culminate in Friday’s key government payrolls report.

Without addressing the softer-than-expected inflation data, Fed Governor Lisa Cook said she is committed to bringing inflation down without harming the labour market as price pressures have been too high for too long.

Among other movers, Hewlett Packard Enterprise climbed 3.9 per cent after the AI server maker raised its long-term revenue growth forecast for its networking business and announced a US$1.2 billion deal with Vultr.

Moderna slumped 5.3 per cent after brokerage Citigroup downgraded its rating on the biotech company to “sell” from “neutral”.

Declining issues outnumbered advancers by a 1.66-to-1 ratio on the NYSE and by a 1.51-to-1 ratio on the Nasdaq.

The S&P 500 posted 11 new 52-week highs and 24 new lows while the Nasdaq Composite recorded 54 new highs and 212 new lows.

Volume on US exchanges was 18.13 billion shares, compared with the 17.06 billion average for the full session over the last 20 trading days. REUTERS