Wall Street’s staged a comeback Wednesday as a boost from the technology sector offset investor disappointment at the early morning inflation report, which crushed hopes the Federal Reserve would cut interest rates by 50 basis points next week.
The Dow Jones Industrial Average plunged more than 700 points early Wednesday before closing up 124.75 points, or 0.3%, at 40,861.71. The S&P 500 advanced 1.1%, and the Nasdaq climbed 2.2%.
Nvidia surged 8% after Semafor reported that the US government is considering letting the AI chip company export advanced chips to Saudi Arabia.
Market sentiment was also driven by political developments the day after presidential candidate Kamala Harris put her Republican rival Donald Trump on the defensive in a combative presidential debate.
The Labor Department reported the consumer price index (CPI) rose 0.2% last month, in line with July. Core CPI, excluding volatile food and energy components, rose 0.3% on a monthly basis, exceeding economist expectations for a 0.2% rise.
This changed traders bets to a 85% probability for a 25 basis points cut by the Federal Reserve from 66% on Tuesday and the probability of a 50 basis point cut fell to 13% from 34% a day ago, according to CME Group’s FedWatch tool.
“Maybe the market was looking for a softer inflation print which would give the Fed more reason to cut by 50 basis points next week.” said Jack Janasiewicz, portfolio manager, at Natixis. “This report was in-line to slightly hotter than expectations. As a result, this puts a bit of pressure on the Fed to cut by only 25 basis points.”
As the day wore on investors may have come to terms with the inflation numbers, according to Janasiewicz who also pointed to technology as the stand out “which has helped prop up the broader market.”
Big US lenders extended Tuesday’s declines, sparked by warnings of a dip in trading revenue, a slower-than-anticipated recovery in investment banking and an expected hit to interest income from looming rate cuts.
After the Presidential debate, pricing for a Trump victory was at 48 cents on online betting site PredictIt, and at 55 cents for a Harris win.
As a result, stocks expected to perform well under a Trump presidency fell, with cryptocurrency and blockchain-related shares and prison operators lower. Trump Media & Technology Group slumped 10%.
Meanwhile, solar stocks, seen as benefiting from a Harris administration, attracted some buyers. First Solar was up 15% while Sunrun added 11% and SolarEdge Technologies was up 8.5%.
While the debate offered Wall Street little clarity on key policy issues, some market watchers see Harris’ proposals to raise the corporate tax rate as likely to hit company profits, while Trump’s tougher stance on tariffs could stoke inflation.
GameStop dropped12% after the videogame retailer said it had filed for an offering of up to 20 million shares and reported lower second-quarter revenue.
Shares of lithium miners jumped after Chinese battery giant CATL said it plans to make adjustments to lithium carbonate production in Yichun. Albemarle, one of the largest lithium miners in the world, jumped 14%.
