All three major US stock indexes ended higher on Wednesday. A solid rally in tech stocks offset a morning of disappointment caused by inflation data that dashed hopes that the Federal Reserve would cut interest rates by 50 basis points next week.
The tech sector, represented by the S&P 500 (.SPLRCT), posted an impressive 3.3% gain after starting the day lower. Key to this was Nvidia (NVDA.O), whose shares soared 8%. The reason for the rise was a report from Semafor that the US government is considering allowing Nvidia to export advanced chips to Saudi Arabia.
An additional factor influencing market sentiment was events in the political arena. Democratic candidate Kamala Harris managed to put her opponent, Republican Donald Trump, on the defensive during the presidential debate, which caused some reaction from the market.
Earlier in the day, the US Department of Labor released data on the consumer price index (CPI), which rose 0.2% in August, which is in line with July. Meanwhile, the core CPI, which excludes volatile food and energy categories, rose 0.3%, beating economists' expectations of a 0.2% gain.
Following the release of inflation data, traders revised down their expectations for a Fed rate cut. The probability of a 25 basis point rate cut rose to 85% from 66% the day before, while the probability of a 50 basis point cut fell to 15% from 34%, according to CME Group's FedWatch tool.
"The market was probably expecting a more muted inflation reading, which would give the Fed more reason to cut rates by 50 basis points," said Jack Janasiewicz, portfolio manager at Natixis. "However, the report came in slightly above expectations, putting additional pressure on the Fed to limit itself to a 25 basis point cut."
As the trading day wore on, investors gradually adjusted to the new inflation data. Janasewicz also emphasized that it was the technology sector that supported the broader market, standing out from the crowd.
The Dow Jones Industrial Average (.DJI) rose 124.75 points, or 0.31%, to 40,861.71. The S&P 500 Index (.SPX) rose 58.61 points, or 1.07%, to 5,554.13. The Nasdaq Composite (.IXIC) rose 369.65 points, or 2.17%, to 17,395.53.
Of the 11 key S&P 500 sectors, six were up, with consumer discretionary stocks (.SPLRCD) leading the way, up 1.3%. Meanwhile, energy (.SPNY) was the laggard, down 0.93%, and consumer staples (.SPLRCS) was down 0.88%.
The S&P 500 Financials (.SPSY) managed to pare its losses by the end of trading, closing down just 0.39% after falling more than 2% at the session low.
American Express (AXP.N) led the pack, posting the biggest gains after its CFO said on a conference call that lending was holding up and consumer spending was strong.
Big U.S. banks also pared early losses to end the day higher. Goldman Sachs (GS.N) rose 0.9% and JPMorgan (JPM.N) rose 0.8%. The financial sector was under pressure earlier Tuesday on concerns about a drop in trading revenue, a slow recovery in investment banking and a possible decline in interest income in light of upcoming rate changes.
The political debate also caused notable market moves. Eight weeks before the presidential election and after the debate, contracts on a Kamala Harris victory on the PredictIt platform rose to 57 cents on the dollar of potential payout, up from 53 cents before the debate. Donald Trump contracts fell to 48 cents from 52 cents.
These changes led to a decline in the value of stocks of companies that were expected to benefit from a Trump presidency. In particular, stocks related to cryptocurrency, blockchain, and private prisons showed a decline. Trump Media & Technology Group (DJT.O) shares fell 10.5%.
Amid the expected benefits for green energy from a Harris administration, shares of solar panel manufacturers have significantly increased. First Solar (FSLR.O) climbed 15.2%, Sunrun (RUN.O) added 11.3% and SolarEdge Technologies (SEDG.O) rose 8.5%.
While the debate did not provide Wall Street with a clear answer to important policy questions, experts believe that Kamala Harris' proposals to raise corporate taxes could weigh on corporate profits. Meanwhile, Donald Trump's tough stance on tariffs could increase inflation risks.
GameStop (GME.N) shares fell nearly 12% after the company announced plans to issue up to 20 million new shares and reported a decline in second-quarter revenue, raising investor concerns about the company's future growth.
Lithium stocks surged after Chinese battery major CATL (300750.SZ) announced plans to adjust lithium carbonate production at its Yichun facility. Shares of Albemarle (ALB.N), one of the world's largest lithium miners, rose 13.6% in response to the news.
At the New York Stock Exchange (NYSE), advancers outnumbered decliners 1.4 to 1, with 342 new highs and 130 new lows. On the Nasdaq, 2,337 stocks rose and 1,882 fell, creating a 1.24-to-1 gainer-decliner ratio.
The S&P 500 posted 21 new 52-week highs and 17 new lows, while the Nasdaq Composite posted 48 new highs and 129 lows. Total trading volume on U.S. exchanges reached 12.19 billion shares, above the 20-day moving average of 10.80 billion shares.
Wall Street recovered from a morning selloff on Wednesday, closing higher. Brent crude prices also rebounded from three-and-a-half-year lows. This came as a key inflation report bolstered expectations that the Federal Reserve will announce a 25 basis point interest rate cut next week.
Investors were closely watching the US presidential debate on Tuesday night to assess possible changes in economic and fiscal policy after the November elections.
By mid-trading, all three major US stock indexes had reversed their downward trend, turning a morning sell-off into a rally. Technology (.SPLRCT), especially chip makers (.SOX), outperformed significantly, helping the Nasdaq to lead the way.
The annual rate of inflation, as measured by the Consumer Price Index (CPI), fell 0.4 percentage points to 2.5%, below expectations, according to the US Department of Labor. But the benchmark index, which excludes volatile categories such as food and energy, posted a 0.3% monthly gain and a 3.2% annual gain, beating analysts' forecasts.
"The inflation report was a mixed bag, satisfying both the bears and the bulls," said Chuck Carlson, CEO of Horizon Investment Services in Indiana. "Initially, it looked like a 50 basis point rate cut was unlikely," he continued. "Now investors may be starting to realize that it's not such bad news."
Markets are pricing in an 85% chance that the Federal Reserve will cut its key interest rate by 25 basis points at its upcoming meeting. The chance of a larger 50 basis point rate cut has fallen to 15%, according to CME's FedWatch tool.
European stock markets ended the trading session little changed as investors turned their attention to the European Central Bank (ECB) and its upcoming interest rate decision expected on Thursday. The pan-European STOXX 600 index (.STOXX) rose a symbolic 0.01%, while the MSCI index of global stocks (.MIWD00000PUS) rose 0.62%.
Emerging market stocks were down 0.37%. MSCI's broad index of Asia-Pacific shares excluding Japan (.MIAPJ0000PUS) fell 0.24%, while Japan's Nikkei (.N225) lost 1.49%.
U.S. 10-year Treasury yields steadied after an early decline, with rates hitting their lowest since June 2, 2023. The 10-year yield was last at 3.6609%, down from 3.644% at Tuesday's close, with the price down 5/32. The 30-year note also fell 12/32, pushing its yield up to 3.9743% from 3.954% the previous day.
The U.S. currency showed modest gains against a basket of global currencies after inflation data confirmed expectations for a smaller 25 basis point rate cut.
The dollar index (.DXY) rose 0.08%, while the euro slipped 0.04% to $1.1015.
The Japanese yen strengthened 0.04% against the U.S. dollar to trade at 142.40 per dollar. The British pound was last seen at $1.3042, down 0.28% on the day.
Oil prices steadied after Tuesday's big losses as U.S. crude inventories fell and supply disruptions from Hurricane Francine offset concerns about weaker global demand.
U.S. WTI crude rose 2.37% to $67.31 a barrel, while Brent crude rose 2.05% to $70.61 a barrel.
Gold prices slipped as expectations for a bigger Fed rate cut at its upcoming monetary policy meeting faded.
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