Wall St muted ahead of Nvidia results, hot inflation fuels rate-hike bets

Wall Street's major indexes were calm on Wednesday as investors remained on the sidelines before AI leader Nvidia's earnings release. Higher-than-anticipated inflation bolstered expectations for a September interest rate increase. A Commerce Department report revealed U.S. inflation rose 3.7% year-over-year in the 12 months ending July, slightly above the 3.6% forecast by analysts.

The economy expanded 1.5% in the second quarter, according to a revised estimate. With the data, the chances of a Federal Reserve rate hike in September rose to about 44%, up from about 36% prior to the release. Fed funds futures indicated a higher likelihood of a September rate increase, driven by lingering inflationary pressures.

Jeff Buchbinder, chief equity strategist at LPL Financial, noted that inflation's stickiness is putting upward pressure on interest rates, which could help sustain the current stock market rally. Among S&P 500 components, information technology and industrials led the gains, rising 0.3% and 1% respectively. Microsoft and Apple were among the biggest gainers, each surging 0.5%.

Nvidia, however, fell 0.4% ahead of its anticipated quarterly report. Analysts are closely watching Nvidia's results, as disappointing earnings could reignite concerns about the long-term viability of the AI boom and impact tech stocks throughout the week. Buchbinder emphasized that earnings have been outperforming interest rates so far, and as long as fundamentals remain strong, the market should remain resilient.

The Dow Jones Industrial Average closed 21.54 points, or 0.04%, lower at 53,555.86, the S&P 500 added 2.24 points, or 0.03%, to 7,679.52, and the Nasdaq Composite dropped 13.85 points, or 0.06%, to 26,137.16. Financials on the Dow Jones experienced a slight decline, while Alphabet and some healthcare stocks remained flat. Meta agreed to pay up to $16.68 billion and make significant changes to Facebook and Instagram in response to claims of harm to children from U.S. states.

After the announcement, Meta's shares declined 0.6% in premarket trading. Intuit's stock dropped 4% after the company forecast annual revenue below market expectations, and other software firms also faced pressure, with ServiceNow and Atlassian falling about 2% each. J.M. Smucker gained 4% after reporting a smaller-than-expected decline in annual sales.

Simultaneously, Tehran and Oman reached agreements on their respective shares of the Strait of Hormuz and its revenues, according to an Iranian Revolutionary Guards spokesperson. Treasury yields had been at multi-year highs due to concerns about higher-for-longer oil prices, increased government debt, and inflation expectations.

However, they eased after the Treasury Department announced support measures. Federal Reserve Chairman Kevin Warsh's speech at the Jackson Hole symposium on Friday is expected to receive significant attention as U.S. equities enter the traditionally weaker month of September. On the NYSE, advancing issues outnumbered decliners by a 1.17-to-1 ratio, while on the Nasdaq, advancing issues exceeded decliners by a 1.2-to-1 ratio.

The S&P 500 achieved 7 new 52-week highs and 2 new lows, while the Nasdaq Composite recorded 32 new highs and 32 new lows.