Nasdaq rises as softer inflation eases October rate-hike bets

US stocks finished mixed on Sept 29 after new data showed inflation rising more slowly than economists had expected, reducing expectations that the Federal Reserve will raise interest rates again at its October meeting.

The Nasdaq Composite gained 63.52 points, or 0.24 per cent, to 26,861.06. The S&P 500 slipped 19.30 points, or 0.25 per cent, to 7,651.54, while the Dow Jones Industrial Average dropped 443.87 points, or 0.86 per cent, to 50,906.05.

The session had begun more strongly. The S&P 500 was up as much as 0.7 per cent and the Nasdaq had risen as much as 1.2 per cent before both gave back some ground. The retreat came as the yield on the two-year US Treasury note turned slightly higher. That yield is closely watched because it generally reflects expectations for the Fed’s near-term interest-rate decisions.

According to The Straits Times, the Personal Consumption Expenditures Price Index rose 3.4 per cent in August from a year earlier, below the 3.7 per cent increase expected by economists surveyed by Reuters. The measure is closely followed by the central bank when assessing inflation.

Rate expectations shift

Market-based estimates for a rate increase of at least 25 basis points at the Fed’s October meeting fell to about 37 per cent, from around 51 per cent in the previous session and nearly 71 per cent a week earlier, according to CME’s FedWatch Tool.

The central bank raised interest rates by 25 basis points this month. Fed officials have nevertheless indicated that further increases could be necessary if inflation remains too high. Governor Lisa Cook said she was committed to lowering price pressures without damaging the labour market, although her comments did not directly address the latest inflation reading.

Analysts cautioned that changes to the Bureau of Economic Analysis’ method for calculating the PCE index helped produce the lower result. The reading therefore offered some relief to investors, but it did not remove the broader uncertainty surrounding interest rates and the economy.

Higher crude oil prices linked in the report to the US-Iran war, along with exceptionally expensive diesel fuel, have added to concerns about inflation. Those pressures have helped push Treasury yields higher. Longer-term yields continued rising on expectations that economic growth will remain firm.

The Commerce Department also reported that its final estimate for second-quarter gross domestic product showed annualised growth of 2.2 per cent. Consumer spending and investment supporting the expansion of artificial-intelligence infrastructure were among the factors behind the stronger reading.

Growth, profits and market risks

Anthony Saglimbene, chief market strategist at Ameriprise Financial, said investors were weighing whether the economy could continue expanding while companies dealt with higher borrowing costs. He said markets could tolerate elevated rates when growth, profits and long-term investment themes remained strong, but warned that prolonged high rates could damage bond portfolios, restrict credit and eventually weigh on economic activity and corporate earnings.

The latest figures on employment offered another sign of resilience. Private employers added 90,000 jobs during the month, following a downwardly revised increase of 36,000 in August, the ADP National Employment Report showed. The report was one of several labour-market indicators released during the week ahead of the government’s important payrolls report due on Oct 2.

Technology shares helped limit the S&P 500’s decline. Microsoft, Apple and Nvidia all advanced, lifting the index’s technology sector by 0.6 per cent, its strongest performance among the major sectors. Even so, nine of the S&P 500’s 11 main sectors ended lower.

Hewlett Packard Enterprise was among the notable individual gainers, climbing 3.9 per cent. The AI server company raised its long-term revenue-growth outlook for its networking business and announced a US$1.2 billion deal with Vultr. Moderna fell 5.3 per cent after Citigroup cut its rating on the biotechnology company to sell from neutral.

Quarterly gains despite a weaker month

The S&P 500 and Nasdaq each recorded their second consecutive quarterly gain and their fifth advance in the past six quarters. The Dow, however, posted a quarterly decline for the second time in three quarters.

Performance over the month was less uniform. The S&P 500 fell 0.45 per cent, the Nasdaq rose 1.86 per cent and the Dow declined 4.29 per cent. The Dow ended a five-month run of monthly gains, while the S&P 500 fell for the third time in four months. The Nasdaq rose for a second straight month.

Market breadth remained weak. Declining shares outnumbered advancing ones by 1.66 to 1 on the New York Stock Exchange and by 1.51 to 1 on the Nasdaq. The S&P 500 recorded 11 new 52-week highs and 24 new lows; the Nasdaq registered 54 new highs and 212 new lows.

Trading volume reached 18.13 billion shares across US exchanges, above the 17.06 billion average for full sessions over the previous 20 trading days.