Stocks are experiencing volatility on Wall Street this afternoon, pulling back from recent all-time highs. This dip follows the release of a closely monitored inflation measure, which indicated that prices largely remained stable through the previous month. Traders are absorbing this data, with the S&P 500 down 0.7% after reaching a record high just the day before. Despite today’s declines, the index is set to finish August with an approximate 1.9% gain, marking its fourth consecutive month of increases.
The Dow Jones Industrial Average has also retreated from a record elevation, shedding 111 points, or 0.3% at 2:39 p.m. Eastern Time. Meanwhile, the Nasdaq Composite is faring even worse, down by 1.2%. Losses in technology stocks are notably weighing on the overall market performance, compensating for gains seen in healthcare and other sectors.
A standout decline in the tech arena comes from Dell Technologies, which plummeted 9.3% after posting second-quarter revenue that exceeded expectations but raised concerns about growing margin pressures and a decline in PC sales. Other notable tech stocks also faced significant drops: Nvidia fell 3.4%, Broadcom dipped 4.3%, and Oracle reported a steep 6.3% decline.
According to the Commerce Department, prices rose 2.6% in July compared to the previous year—steady from June and aligning with economists’ projections. However, when stripping out the more volatile food and energy sectors, prices increased by 2.9% in July, up from 2.8% in June. This is the highest inflation figure recorded since February and suggests sustained price pressures despite an easing trend from the roughly 7% peak inflation observed three years ago. The Federal Reserve’s target rate remains at a much lower 2%.
In light of these observations, Federal Reserve Chair Jerome Powell indicated last week that the central bank might consider cutting its key interest rate at the upcoming policy meeting, especially as the job market appears to be displaying signs of sluggishness. Recent government data illustrates a sharp slowdown in hiring since spring, which could influence the Fed’s decisions moving forward.
“Today’s in-line PCE Price Index will keep the focus on the jobs market,” remarked Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. Many analysts are now leaning towards a rate cut in September, with expectations adding to market fluctuations. Lower interest rates could invigorate investment and economic activity by making borrowing more accessible for both households and businesses, yet they may also exacerbate inflationary pressures.
Traders have assigned about an 87% chance that the central bank will reduce its benchmark interest rate next month by a quarter percentage point, as indicated by data from CME Group. Coupled with this, a recent University of Michigan survey revealed a decline in U.S. consumer sentiment, reaching its lowest level since May. This decline is largely attributed to rising concerns about inflation and the broader economic environment.
In bond markets, Treasury yields exhibited mixed results. The yield on the 10-year Treasury rose slightly to 4.22% from 4.21% on Wednesday, while the two-year Treasury yield, which is more responsive to anticipated Fed actions, fell to 3.62% from 3.63%. The upcoming Federal Reserve meeting will be crucial, with two additional significant inflation metrics—the producer price index and consumer price index—set to be reviewed before decisions are made. Analysts, such as Chris Zaccarelli from Northlight Asset Management, believe that unless these reports reveal a dramatic inflation spike, the Fed is likely to cut interest rates in the near future.
Market movements today also reflect specific stock trends. Ulta Beauty, despite surpassing second-quarter earnings expectations, saw its stock drop by 6.7%. In stark contrast, Marvell Technology nosedived by 18.3%, failing to meet Wall Street’s third-quarter guidance expectations. However, amidst the general market downturn, a few stocks registered gains. Petco Health & Wellness soared by 22.6%, while Autodesk enjoyed an 8.3% increase, both buoyed by better-than-anticipated quarterly results.
Looking globally, European markets mostly noted declines, while Asian markets closed with mixed sentiments. It is important to remember that U.S. markets will be closed on Monday in observance of the Labor Day holiday, capping off a week of significant economic movements and persistent market uncertainties.