Stocks end mixed as cooler inflation data meets a 10-year yield above 5.3%
A softer-than-expected August inflation reading cut the odds of an October Fed hike, but the 10-year Treasury yield touched its highest level since 2002 and the Dow fell 0.9% on the quarter’s last day.
What we know: The Dow Jones Industrial Average fell 443.87 points, or 0.86 percent, to 50,906.05 on Wednesday; the S&P 500 lost 19.30 points, or 0.25 percent, to 7,651.54; and the Nasdaq Composite gained 63.52 points, or 0.24 percent, to 26,861.06, Reuters and the Associated Press reported. The small-company Russell 2000 fell 0.4 percent to 2,796.86, AP said. The S&P had been up as much as 0.7 percent and the Nasdaq as much as 1.2 percent earlier in the session, according to Reuters.
Inflation cooled more than expected: The Commerce Department’s Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose 3.4 percent from a year earlier in August, below the 3.7 percent economists polled by Reuters expected. Core PCE, which strips out food and energy, rose 3.0 percent, down from 3.3 percent in July, The Asia Business Daily reported. Analysts told Reuters that recent methodology changes by the Bureau of Economic Analysis contributed to the lower reading.
Why stocks faded anyway: Reports suggested the economy was stronger in the spring than first thought, keeping bond yields high, AP reported. Second-quarter GDP growth was revised up to a 2.2 percent annualized rate, Reuters said. The 10-year Treasury yield topped 5.3 percent intraday, its highest since 2002, before ending near 5.298 percent, and the 30-year reached about 5.642 percent, The Asia Business Daily reported. Higher yields raise borrowing costs and make bonds more competitive with stocks.
Fed odds: Traders now see about a 37 percent chance of at least a quarter-point rate hike at the Fed’s October meeting, down from roughly 51 percent the day before and nearly 71 percent a week ago, according to CME’s FedWatch tool as cited by Reuters. The Fed raised rates by 25 basis points this month.
Jobs and movers: Private employers added 90,000 jobs in September after a downwardly revised 36,000 in August, the ADP report showed, per Reuters. The government’s September payrolls report is due Friday, Oct. 2. Hewlett Packard Enterprise rose 3.9 percent after raising a long-term networking growth forecast and announcing a $1.2 billion deal with Vultr; Moderna fell 5.3 percent after Citigroup downgraded it to “sell,” Reuters reported.
Month and quarter: For September, the S&P 500 fell 0.45 percent, the Nasdaq rose 1.86 percent and the Dow fell 4.29 percent, snapping a five-month winning streak, Reuters reported. The S&P 500 and Nasdaq still posted their second straight quarterly gains, while the Dow logged a quarterly decline. For the year, the S&P 500 is up 11.8 percent, AP said.
What this means: Cooler inflation eased fears of an October hike, but strong growth data kept long-term rates near multi-decade highs — and that tug-of-war left the major indexes split. Friday’s jobs report is the next big test.