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

On Wednesday, the US markets experienced a mixed day as the three major indices closed with contrasting performances. The Nasdaq rose while the S&P 500 experienced a dip, however, both indices managed to achieve their second straight quarterly gains. This was after a lower-than-anticipated inflation reading, which reduced expectations of Federal Reserve rate hikes in October.

The Commerce Department reported that the Personal Consumption Expenditures Price Index (PCE) increased by 3.4% on an annual basis in August, which was lower than the estimated 3.7%. The final reading of the second-quarter GDP data was revised upward to a 2.2% annualized rate, largely driven by robust consumer spending and investments, which bolstered the expansion of AI infrastructure.

The increase in crude oil prices resulting from the US-Iran war and soaring diesel fuel costs have heightened inflation concerns, leading to a rise in US Treasury yields. Although the 2-year US Treasury note yield increased slightly, longer-dated yields continued to rise on expectations of strong economic growth.

Market expectations of a Fed rate increase of at least 25 basis points at the October meeting decreased to about 37%, down from around 51% in the previous session and nearly 71% a week ago. Analysts noted that recent methodology changes in calculating PCE contributed to the lower reading. They emphasized that investors are focused on whether the economy can continue to grow and manage the higher interest rates.

The Dow Jones Industrial Average declined by 443.87 points, or 0.86%, to 50,906.05, while the S&P 500 fell by 19.30 points, or 0.25%, to 7,651.54. The Nasdaq Composite, on the other hand, gained 63.52 points, or 0.24%, to 26,861.06. The S&P 500 had risen as much as 0.7% during the session, and the Nasdaq climbed as much as 1.2%.

For the month, the S&P 500 experienced a 0.45% decline, the Nasdaq rose by 1.86%, and the Dow fell by 4.29%. Both the S&P 500 and Nasdaq recorded their second consecutive quarterly advances in six months. The Dow had seen a quarterly decline for the second time in three months.

While most megacap and growth stocks saw an increase, nine of the 11 major S&P sectors ended the day in the red. A labor market report indicated that private employment rose by 90,000 jobs this month, following a downward revision of 36,000 in August, as reported by the ADP National Employment Report. Fed Governor Lisa Cook reiterated her commitment to reducing inflation without compromising the labor market, as price pressures have been too high for too long.