U.S. stocks close mostly higher despite inflation edging up in August

U.S. stock indexes closed mostly higher on Wednesday, as investors digested the latest consumer-price index data showing inflation picked up in August, but likely not by enough to prompt a September interest rate hike by the Federal Reserve.

How stocks traded

  • The S&P 500
    closed up 5.54 points or 0.1% at 4,467.44 and has risen for three of the past four days.

  • The Dow Jones Industrial Average
    ended down 70.46 points or 0.2% at 34,575.53, posting two days of declines.

  • The Nasdaq Composite
    finished up 39.97 points or 0.3% today to 13,813.59

  • The Russell 2000
    was down 14.48 points, or 0.8% to 1,840.84, the index’s first close under the technically important 200-day moving average since June 5, according to Dow Jones Market Data.

Read: Small-cap stock weakness sees Russell 2000 falls below important support level

What drove markets

U.S. stock indexes closed mostly higher Wednesday afternoon, following the release of the U.S. consumer-price index for August. The data showed annual headline inflation rose 3.7% last month, slightly higher than Wall Street’s forecast of 3.6%.

The consumer-price index, which measures costs across a broad variety of goods and services, rose 0.6% for the month, its biggest monthly jump in 14 months, the Bureau of Labor Statistics reported. Excluding volatile energy and food prices, the so-called core inflation rose by 0.3%, also a bigger rise than the 0.2% advance that had been expected.

See: CPI shows biggest increase in inflation in 14 months

Vishal Khanduja, co-head of broad markets fixed income at Morgan Stanley Investment Management, said the headline reading was not a big focus since much of its monthly rise can be explained by the rising oil prices


However, the so-called super-core inflation which refers to the rate of inflation in the services sector after stripping out energy and housing costs, as well as the still-sticky core inflation, did not slow as expected in August, but also didn’t show “much acceleration that would nervously worry the market,” Khanduja told MarketWatch in a phone interview.

“There are push and pull factors within the subcomponents of CPI and that is why we’re getting a very muted reaction from the market, but there is enough in the CPI number that we can convincingly say that September is off the table,” as far as a Fed rate hike is concerned, he said.

See: See how much inflation has raised your cost of living, using MarketWatch’s guide

Still, Nigel Green of deVere Group, a financial-advice and asset-management firm said the uptick in inflation gives the central bank extra reason to be hawkish moving forward. “We also expect the Fed will start to prepare the market for a rate increase at its November meeting,” Green said in emailed comments on Wednesday.

Fed funds futures traders continued to see a 97% probability of no interest-rate hikes by the Federal Reserve at its policy meeting next week, while the chance of a 25-basis-point hike at its November meeting was seen at 39%, little changed from a day ago, according to the CME Fed Watch Tool. 

The yield on the 10-year Treasury note
dropped 3.5 basis points to 4.251%, while the policy-sensitive 2-year Treasury
note was off 4.7 basis points to 4.995%.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said Wednesday’s report was a disappointment due to the 0.3% monthly jump in the core inflation rate. “This isn’t the goldilocks number that investors were hoping for, but markets can still trade in a range — as inflation is high enough to keep the Fed still in play, but not hot enough for a shift away from the ‘Fed is almost done’ narrative,” he said in emailed comments.

Zaccarelli also said the stock market can still rally into year-end as long as the economy remains resilient and inflation doesn’t “reignite,” once the stock market gets past the seasonally weak months of September and October.

MarketWatch Live Coverage: Stock Market Today: Dow nudges higher after CPI reading

See: Tech’s wild week: How Apple, Google, AI, Arm’s mega IPO could set the agenda for years

Meanwhile, the U.S. recorded a $89 billion budget surplus in August, compared with a deficit of $220 billion in the same month last year, the Treasury Department said Tuesday. The improvement was due to technical government accounting.

Companies in focus

  • Citigroup Inc.’s
    stock closed up 1.7% Wednesday after the megabank said it would reorganize into a flatter structure, with the heads of its five major business units reporting directly to Chief Executive Jane Fraser.

  • Shares of Nio
    and Li Auto
    declined by 4.6% and 0.5%, respectively, on Wednesday after the European Union said it’s probing Chinese government subsidies to electric vehicle makers.

  • Apple’s shares
    slipped 1.2%. A Chinese government spokesperson denied there’s a ban in place on foreign phones but noted “security incidents” with the iPhone.

  • Spirit Airlines Inc.’s stock 
    tumbled 6.3% on Wednesday after the discount carrier lowered its third-quarter guidance to reflect increased promotional activity for travel in the second half and a recent spike in fuel prices. American Airlines Group
    also cut its profit outlook in the third quarter, citing more expensive fuel and costs associated with a new labor agreement.

  • Moderna Inc.
    gained 3.2% after the Centers for Disease Control and Prevention recommended updated Covid-19 vaccines to all Americans ages six months and older. Shares of Pfizer Inc.
    dipped 0.2%.

U.S. stocks close mostly higher despite inflation edging up in August

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