Stocks Well Off Lows as Nvidia Leads Tech Rally: Markets Wrap

(Bloomberg) — A rally in some of the world’s largest technology companies pushed stocks away from session lows in a volatile session that had traders digesting faster-than-anticipated inflation data.
The S&P 500 trimmed most of a slide that topped 1.5% earlier Wednesday. Nvidia Corp. climbed 4% to lead gains in chipmakers. Financial, energy and industrial shares remained under pressure. Treasury yields edged up on bets the Federal Reserve will move gradually with rate cuts. Swap traders priced in a 25-basis-point Fed cut at next week’s gathering and see only a small chance for a half-point reduction.
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“The firmer-than-expected core inflation print will make it harder for Jerome Powell to deliver a 50 basis-point cut in September,” said Krishna Guha at Evercore. “We continue to think a starter 50 basis-point cut is the right play and might even now win out. But the odds have moved against this, and risks to markets and the soft landing are higher as a result.”
Guha noted that if the Fed doesn’t cut rates by 50 basis points next week, it will possibly do that in November.
The so-called core consumer price index — which excludes food and energy costs — increased 0.3% from July, the most in four months, and 3.2% from a year ago, Bureau of Labor Statistics figures showed Wednesday. The three-month annualized rate advanced 2.1%, picking up from 1.6% in July, according to Bloomberg calculations.
The S&P 500 fell 0.3%. The Nasdaq 100 rose 0.3%. The Dow Jones Industrial Average slipped 0.7%. The Russell 2000 Index lost 0.5%. The KBW Bank Index slumped 1.5%.
Treasury 10-year yields advanced two basis points to 3.66%. The dollar wavered. 
The inflation report has long been the most critical number in the market, but it has recently been overtaken by the concern for a cooling job market and recession worries, according to Jakob Westh Christensen at eToro.
“Going forward, the risks are clearly weighted toward slowing growth and a deteriorating labor market, and that’s why there are still four 25 bps cuts priced in with only three meetings left in the year,” said Chris Zaccarelli at Independent Advisor Alliance. “If the economy continues to slow – and not drop into an abrupt recession – the Fed will be able to cut at a measured, 25 basis-point per meeting pace.”
To David Russell at TradeStation, while the latest inflation numbers aren’t “runaway dovish,” they confirm the cooling process remains in effect. Attention could now shift from the Fed as a catalyst toward earnings and the election cycle, he noted.
“This isn’t the CPI report the market wanted to see,” said Seema Shah at Principal Asset Management. “The number is certainly not an obstacle to policy action next week, but the hawks on the committee will likely seize on today’s CPI report as evidence that the last mile of inflation needs to be handled with care and caution.”
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