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

On Wednesday, the US commerce department announced that the Personal Consumption Expenditures (PCE) price index rose by 3.4% annually in August, lower than the 3.7% estimate. Meanwhile, the Nasdaq reported a gain while the S&P 500 experienced a decline. The softer-than-anticipated inflation reading has cooled expectations of a Federal Reserve rate hike in October.

The revised second-quarter GDP data rose to a 2.2% annualized rate, driven by robust consumer spending and investments supporting AI infrastructure development. Rising crude oil prices from the US-Iran conflict and high diesel fuel costs have fueled inflation concerns, pushing US Treasury yields higher. Fed officials hint at additional rate hikes if price pressures do not subside after the central bank raised rates by 25 basis points this month.

Consequently, the 2-year US Treasury note yield, typically influenced by Fed rate expectations, slightly increased on day.

Market expectations for a rate hike of 25 basis points at the Fed's October meeting declined to approximately 37%, down from 51% the previous session and 71% a week ago. Analysts noted that recent methodology changes in calculating PCE by the Bureau of Economic Analysis contributed to a lower reading.

The 2-year US Treasury note yield, reflecting expectations for Fed interest-rate changes, rose slightly. Fed Governor Lisa Cook emphasized her commitment to reducing inflation without harming employment, as price pressures have persisted for too long. Hewlett Packard Enterprise surged 3.9% after the AI server manufacturer revised its long-term revenue growth forecast and signed a $1.2 billion deal with Vultr.

Moderna dropped 5.3% following a downgrade to "sell" by Citigroup. Nine of the 11 major S&P sectors closed lower, despite the S&P 500 and Nasdaq recording their second consecutive quarterly gains. The Dow Jones Industrial Average slipped 0.86%, while the S&P 500 dipped 0.25%, and the Nasdaq climbed 0.24%.