4:22pm: Government shutdown spooks investors
The Dow closed Friday down 159 points, 0.5%, at 33,508, the Nasdaq Composite added 18 points, 0.1%, to 13,219 and the S&P 500 slid 12 points, 0.3%, to 4,288. The small-cap Russell 2000 index declined 9 points, 0.5%, to 1,785.
Earlier in the session, the Dow and S&P were ahead after the US central bank’s preferred inflation gauge hit a two-year low boosting hopes that interest rates have peaked. It didn't last, however, as both indexes slumped into the red.
For the S&P 500 and Nasdaq, Friday's session concluded the worst trading month so far in 2023.
Investors may have reacted poorly to the lack of a budget deal that could have prevented a government shutdown, which is posied to go into effect over the weekend.
“The market will also need to deal with what appears to be a likely government shutdown,” said Chris Fasciano, portfolio manager at Commonwealth Financial Network. “How long it lasts and how it affects short-term economic data, consumer confidence and interest rates will be amongst key topics for investors to pay attention to.”
12:05pm: Fed’s preferred inflation metric rises less than expected
US stocks were mixed in noon trading after the personal consumption expenditures (PCE) price index reading, the Federal Reserve’s preferred inflation metric, increased less than expected on a month-over-month basis.
At midday, the Dow lost 58 points to 33,609, while the S&P 500 added 7 points at 4,307 and the tech-heavy Nasdaq rose 79 points to 13,280.
"Stocks have declined too much and too fast during this seasonally volatile time of the year driven by a long list of worries," BMO Family Office CIO Carol Schleif said.
Notable movers included shares of Nike Inc (NYSE:NKE), which climbed 6% after the apparel maker beat expectations on 1Q earnings and gross margin.
9:42am: Stocks jump as inflation data hits 2-year low
Stocks pushed higher after the US central bank’s preferred inflation gauge hit a two-year low boosting hopes that interest rates have peaked.
Shortly after the opening bell, the Dow Jones Industrial Average was up 156.15 points, 0.5%. at 33,822.49, the S&P 500 was up 25.95 points, 0.6%, at 4,325.65 and the Nasdaq Composite was up 128.14 points, 1.0%, at 13,329.42.
The core personal consumption expenditures price index, excluding food and energy, has dropped to an annual rate of 3.9% in August, according to figures from the Bureau of Economic Analysis, down from 4.2% in July.
That’s the lowest reading for Core PCE since September 2021, and could signal that America’s battle against inflation is still on track.
On a monthly basis, core PCE rose by just 0.1% in August, easing from July's 0.2% increase.
Craig Erlam at Oanda said while the annual readings may have been in line that's “extremely promising as far as recent trends are concerned.”
“With data over the coming weeks likely to be disrupted, this certainly feels like it falls in the pause category for the Fed at the next meeting,” he said.
Andrew Hunter at Capital Economics said the data also reinforced his view that the Fed’s inflation projections are far too pessimistic.
“Barring a dramatic re-acceleration in that monthly pace, which is unlikely given the cooling labour market and the sharp downturn in housing inflation, we continue to expect core PCE inflation fall well below the Fed’s 3.7% projection for the end of this year.”
“That should help ensure that the Fed’s next move will be to start cutting rates again early next year,” he thinks.
Ian Shepherdson at Pantheon Macroeconomics focused on core services PCE ex-housing, the Fed’s current focus, which rose just 0.1% month-to-month, after a 0.5% leap in July.
He pointed out in the three months to August, core PCE services ex-housing rose at a 3.4% annualized rate, compared to the previous three months, little changed from July but a sharp downshift from the 5.5% increase in January.
He said the Fed has already has conceded that core goods and rent disinflation is well underway, “and soon they will have to acknowledge the improvement in core services ex-rents, setting the stage for rate cuts next year.”
“We think they are done hiking,” he added.
9:06am: Fed's preferred inflation gauge hits 2-year low
Stock futures have risen further after news the Federal Reserve’s preferred inflation measure has dropped to a two-year low.
The core personal consumption expenditures price index, excluding food and energy, has dropped to an annual rate of 3.9% in August, according to figures from the Bureau of Economic Analysis, down from 4.2% in July.
US PCE Deflator in line with expectations. The headline show a YoY rise to 3.5% from a revised higher 3.4% print in July, with the core falling to 3.9% with the July also seeing a small revision higher to 4.3% #inflation #FOMC pic.twitter.com/hgFFheVGUO
— Ole S Hansen (@Ole_S_Hansen) September 29, 2023
That’s the lowest reading for Core PCE since September 2021, and could signal that America’s battle against inflation is still on track.
On a monthly basis, core PCE rose by just 0.1% in August, easing from July's 0.2% increase.
The headline PCE index rose 3.5% on-year last month, quickening slightly from a 3.4% increase in July, the third month in-a-row that year-on-year growth in personal consumption expenditures has quickened.
On a monthly basis, personal consumption expenditures increased 0.4% in August from July.
7:00am: Bright start expected ahead of PCE inflation data
US stocks look set to end a drab month on the front foot with futures pointing to a strong open on Friday.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.5% higher, while those for the S&P 500 rose 0.6%, and contracts for the Nasdaq 100 futures were up 0.7%.
Strong results from Nike Inc (NYSE:NKE) lifted the mood with the Eugene, Oregon-based retailer up 8% in pre-market deals.
Whether the good mood holds could depend on how the US Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures price index prints today.
It is expected to reach an annualised rate of 3.9%, down from 4.2% in July. Headline PCE is projected to be 3.5% in August, up from 3.3% in July.
Elsewhere, The University of Michigan will release the final September reading of its consumer sentiment index, which economists anticipate will be the same as the preliminary level of 67.7.
Meanwhile, John Williams, head of the Fed’s New York branch, will tour Long Island and meet leaders in business and government, and is expected to deliver remarks about the economic outlook at the Long Island Association.
On Thursday, Chicago Fed President Austan Goolsbee said policymakers were at risk of overshooting on interest rates by putting too much emphasis on the idea that steep job losses are needed to quell inflation.