On Wednesday, U.S. stocks ended the day mixed, recovering from earlier losses following a mixed inflation report. Major indexes showed resilience, with the Dow Jones Industrial Average staging a significant comeback after being down by as much as 600 points during the day. In contrast, bond yields moved higher, reflecting the ongoing uncertainty surrounding interest rates.
Inflation Report and Rate Cut Expectations
Investors reacted to higher-than-expected core consumer prices for August, which caused markets to reconsider the likelihood of a larger rate cut by the Federal Reserve. Initially, there had been speculation of a 50 basis point cut, but with the latest inflation data, the probability of such a move has decreased significantly. According to the CME FedWatch tool, markets are now pricing in an 85% chance of a more modest 25 basis point cut at the Fed’s policy meeting next week.
Economists and strategists weighed in on the Fed’s approach. Bill Adams, chief economist at Comerica Bank, noted that the inflation data supports a quarter-point rate cut, but warned that persistent service-price inflation might lead to a slower pace of rate cuts than the market anticipates. Bank of America strategists echoed this sentiment, emphasizing that current housing inflation levels remain inconsistent with the Fed’s 2% inflation target, indicating that it’s still too early to declare victory over inflation.
Key Data Points Ahead
As the Fed’s September 18 policy meeting approaches, investors are also keeping an eye on other economic indicators. August producer price inflation data, weekly jobless claims on Thursday, and retail sales data next Tuesday are expected to further inform the central bank’s decision.
Tech Sector Boosted by Nvidia
Tech stocks saw significant gains, led by Nvidia, which surged over 8%. CEO Jensen Huang helped alleviate investor concerns about the company’s AI investments during a Goldman Sachs-hosted event, boosting investor confidence in the company’s long-term AI strategy.
Market Performance at Closing
S&P 500: 5,554.11, up 1.07%
Dow Jones Industrial Average: 40,861.71, up 0.31% (+124.75 points)
Nasdaq Composite: 17,395.53, up 2.17%
Other Market Highlights
- West Texas Intermediate crude oil increased 2% to $67.07 a barrel, while Brent crude rose 1.7% to $70.40 a barrel.
- Gold dipped 0.25% to $2,510.16 an ounce.
- The 10-year Treasury yield edged up one basis point to 3.655%.
- Bitcoin dropped 0.6% to $57,574.
Conclusion
Wednesday’s market action underscores the ongoing tension between inflation concerns and rate cut expectations. While investors remain hopeful for a modest rate cut, uncertainty about future economic conditions, especially inflation, continues to weigh on market sentiment. In the coming days, key economic data will provide further clues on the Fed’s direction, making next week’s policy decision highly anticipated.
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