Stocks jumped at the open as an encouraging reading on inflation sent Treasury yields lower. The main benchmarks lost steam as the session wore on, however, as brinkmanship in Washington D.C. has the U.S. government all but likely to shut down over the weekend.
Ahead of the opening bell, the Bureau of Economic Analysis said its August personal consumption and expenditures (PCE) index, the Fed's preferred measure of inflation that tracks consumer spending, was up 0.4% month-over-month and 3.5% year-over-year – both figures higher than what was seen in July.
Still, the monthly increase (0.1%) and annual increase (3.9%) in core PCE, which excludes volatile food and energy prices, were each lower than July's figures. Additionally, the year-over-year core PCE reading was the lowest in two years.
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"The inflation news was rather positive," says Edward Moya, senior market strategist at currency data provider OANDA. " When you combine today's PCE and consumer data with yesterday's downward revised personal consumption numbers, one should expect that economic activity will slow down quicker in the fourth quarter."
The data boosted expectations the Federal Reserve will keep interest rates steady at both its November and December meetings, even as the central bank at its most recent gathering projected one more potential rate hike this year.
According to CME Group, futures traders are pricing in an 86% chance for a pause at the next Fed meeting, up from 73% one week ago. The probability the central bank will keep the federal funds rate unchanged at its current range of 5.25% to 5.5% in December rose to 64% from last week's reading of 58%.
Shutdown looms as short-term spending measure fails
Lowered expectations for future rate hikes sent Treasury yields retreating and stocks soaring out of the gate, though sentiment fizzled into the weekend as investors worried over a looming government shutdown. The deadline to pass funding legislation is Saturday at midnight. This afternoon, House Speaker Kevin McCarthy failed to find support to pass even a stopgap spending measure.
Shutdowns historically have not been all that bearish on stocks. However, one complication could be that a data dependent Fed will find itself flying blind. Economic data will not be tabulated during a shutdown, says Carol Schleif, chief investment officer at BMO Family Office. This "ironically could cause them to err on the side of holding steady, instead of increasing rates, until they get clearer data sets," Schleif adds.
Nike shines after earnings
After being up more than 1% this morning, the Nasdaq Composite finished up 0.1% at 13,219. The S&P 500 ended 0.3% lower at 4,288. The Dow Jones Industrial Average underperformed its peers, shedding 0.5% to 33,507, though two of its components – Nike (NKE) and Walgreens Boots Alliance (WBA) – were among the day's best stocks.
Nike, for its part, jumped 6.7% after the athletic apparel maker reported higher-than-expected fiscal first-quarter earnings of 94 cents per share. The company also said inventory levels were down 10%. Revenue of $12.9 billion fell short of analysts' estimates. The big earnings beat sent fellow shoe stocks Adidas (ADDYY, +6.1%) and ON Holding (ONON, +6.1%) soaring.
Walgreens Boots Alliance (WBA), meanwhile, was the best Dow Jones stock today. Shares of the pharmacy chain popped 6.4% after a Bloomberg report indicated the company is considering Tim Wentworth, a former Cigna (CI) executive, as its next CEO. Earlier this month, Rosalind Brewer announced she was stepping down as head of Walgreens.
All three main benchmarks finished the month and quarter with substantial losses.
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