The latest inflation data follows updates on jobs and consumer confidence this week that also supports hopes for the Fed to pause interest rate hikes. The central bank held rates steady at its last meeting and is expected to do the same in September. Investors are expecting rates to hold steady for the remainder of 2023, according to CME’s FedWatch tool.
The Fed has maintained that it is ready to keep raising interest rates if it has to, but will base its next moves on the latest economic data.
“The last hike they made potentially could be the last for the year,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “As long as inflation remains controlled and contained, I think the Fed is done raising interest rates.”
Bond yields fell again Thursday. The yield on the 10-year Treasury slipped to 4.10 per cent from 4.11 per cent late Wednesday. The yield on the 2-year Treasury, which tracks expectations for the Fed, edged lower to 4.85 per cent from 4.88 per cent late Wednesday.
Wall Street has one more big economic update to look forward to this week. On Friday, the government will report employment data for August. The strong job market, along with consumer spending, has so far helped thwart a recession that analysts expected at some point in 2023. But, they also made the Fed’s task of taming inflation more difficult by fuelling wage and price increases.
The Fed is hoping that it can accomplish taming interest rates without sending the economy into a recession. The likelihood of a recession, or at least a severe one, has seemingly been fading and in turn fuelling confidence in the market in 2023, despite the recent August slump.
“Sooner or later you need to have a pullback,” Zaccarelli said. “The market can’t go up in a straight line all the time.”
Health care stocks and banks were among the biggest drags on the market. UnitedHealth Group fell 3 per cent, while Elevance Health fell 3.8 per cent.
Gains in technology stocks helped stem the S&P 500’s slide. Broadcom rose 3.4 per cent and Intel rose 1.8 per cent.
Software company Salesforce rose 3 per cent after raising its profit forecast for the year. Cloud-based security company CrowdStrike jumped 9.3 per cent after reporting strong financial results.
Dollar General was among several retailers slipping after reporting weak earnings and forecasts. It slumped 12.2 per cent after cutting its profit forecast for the year.
All told, the S&P 500 fell 7.21 points to 4,507.66 Thursday. The Dow lost 168.33 points to 34,721.91, and the Nasdaq rose 15.66 points to 14,034.97.
Markets in Europe mostly fell. Annual inflation there held steady in August as food prices raced ahead of falling fuel costs, but there was no clarity about whether the European Central Bank will pause its record series of interest rate hikes.
Asian markets were mixed.