U.S. stocks were struggling to hold on to their initial gains Friday during the final session of what has been a difficult month and quarter.
Earlier, investors had cheered the release of the Federal Reserve’s preferred inflation gauge, which showed the pace of growth in core prices had slowed in August.
What’s happening
-
The Dow Jones Industrial Average
DJIA
fell 61 points, or 0.2%, to 33,605. -
The S&P 500
SPX
gained 7 points, or 0.2%, to 4,307. -
The Nasdaq Composite
COMP
rose by 80 points, or 0.6%, to 13,278.
On Thursday, the Dow Jones Industrial Average rose 116 points, or 0.35%, to 33,666, the S&P 500 increased 25 points, or 0.59%, to 4,300, and the Nasdaq Composite gained 108 points, or 0.83%, to 13,201.
What’s driving markets
After shooting higher at the open, U.S. stocks have surrendered most of their earlier gains, with the Dow sliding into the red as weakness in a smattering of blue-chip stocks offset strength in Walgreens Boots Alliance and Nike.
The S&P 500 is now struggling to stave off what would be a fourth-straight weekly loss. It was down 0.2% on the week in recent trade, according to FactSet data. That would be the longest such losing streak since December.
Analysts blamed the late-day weakness on funds’ repositioning their portfolios heading into the fourth quarter, which starts Monday. They also noted that while the PCE price index showed inflation has continued to ease, it’s clear the Fed is still nowhere near declaring victory on its war against the worst inflationary wave in 40 years.
“With this being the month- and quarter-end, there will be lots of repositioning today, which may mean lower stock prices later, given that we have been in a risk off market environment for much of September,” said Fawad Razaqzada, market analyst at City Index and FOREX.com, in emailed commentary. In any event, volatility is here to stay.”
The PCE data, released before markets opened on Friday, showed the year-over-year increase for core prices, which excludes volatile food and energy prices, up just 3.9% year-over-year, the slowest 12-month pace in two years. The Fed favors the core inflation rate because it sees the data as better indicators of long-term inflation trends.
However, the impact of rising energy prices was felt in the headline PCE index, which rose a sharp 0.4% in August, the biggest increase in seven months.
As investors cheered the PCE report, some pointed out that it likely wouldn’t deter the Fed from their higher-for-longer plans. Stocks have fallen since the Fed revealed earlier this month that it expects to keep its policy rate north of 5% for longer than investors had previously expected.
“Friday’s PCE on a core basis, which removes food and energy prices, suggests that inflation is continuing to decelerate, meaning the Fed’s aggressive campaign is working,” Carol Schleif, chief investment officer at BMO Family Office, said in emailed commentary. “The challenge is that core PCE remains almost double the Fed’s 2% target, prompting the Fed to keep the possibility of another rate hike in play.”
Callie Cox, U.S. investment strategist at eToro, highlighted the decline in services inflation, which was up 4.9% in August from 12 months earlier.
“Services inflation is cooling off, too, which is what Powell and the Fed want to see as they near the end of rate hikes. Altogether, this report should bring bond yields back down to earth,” she said in emailed commentary.
Besides inflation, the report also showed personal income rising 0.4%. That was driven by increases in private wages and salaries, but it also reflects higher interest income.
Investors also received an update from the Chicago Business Barometer, also known as the Chicago PMI, which registered at 44.1 in September, its first decline in three months. A reading from the University of Michigan consumer sentiment index showed sentiment improved slightly at the end of September, with the final reading of the sentiment survey rising to 68.1 from 67.7 earlier in the month.
The UMich data also included a reading on inflation expectations, which showed respondents expected inflation to wane further to 3.2% in one year. That’s notable in that it shows the recent rise in oil prices hasn’t had much impact.
Though the S&P 500 is climbing for its third straight day, it’s set to end the month with a loss of around 5%, as long-term bond yields and the U.S. dollar have climbed, heaping pressure on stocks.
The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was off by 4 basis points to 4.530% in recent trade, although it remained near 16-year highs reached earlier this week. Bond yields move inversely to prices.
Stocks to watch
- Shares of Nike Inc. NKE, a component of the Dow Jones Industrial Average, rallied as the apparel maker reported better-than-forecast earnings.
-
Nike’s rivals, Adidas AG
ADS,
+6.22%
and Puma SE
PUM,
+5.76% ,
saw their shares rise during early European markets action, after their U.S. peer beat first-quarter earnings forecasts. -
Shares of Fisker Inc.
FSR,
-0.15%
were knocked lower after the electric vehicle maker announced intentions to offer additional convertible debt to an existing institutional investor. -
Blue Apron Holdings Inc.’s
APRN,
+133.70%
stock soared following the announcement of a deal that will see the company become acquired by a food-delivery startup. The deal will see the company exit public markets at a fraction of the valuation it fetched at its IPO. -
Walgreens Boots Alliance Inc.
WBA,
+5.72%
shares were up sharply following a lackluster session on Thursday. -
Shares of Tesla Inc.
TSLA,
+1.31% ,
an electric-car maker included in the group of “Magnificent Seven” market-leading stocks, were rising ahead of delivery data expected next week.
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