U.S. stocks experienced a pullback on Thursday, with the S&P 500 and Dow Jones Industrial Average falling from recent record highs as investors reacted to a persistent inflation report.
The S&P 500 dropped 0.21%, closing at 5,780.05, while the Dow Jones fell 57.88 points, or 0.14%, finishing at 42,454.12. The Nasdaq Composite edged down by 0.05%, ending the day at 18,282.05.
“The market is reacting largely to the Consumer Price Index (CPI) report, which showed inflation remains sticky,” said Luke O’Neill, portfolio manager at CooksonPeirce. “While not surprising, some of the underlying data is hotter than anticipated, leading investors to sell off rate-sensitive small- and mid-cap stocks.”
The CPI report for September revealed a 0.2% monthly increase, pushing the annual inflation rate to 2.4%, slightly above the expected 0.1% monthly gain and 2.3% year-over-year rise. This marks the lowest year-over-year rate since February 2021.
Following the inflation data, Atlanta Federal Reserve President Raphael Bostic indicated to The Wall Street Journal that he would support a pause in rate cuts at the upcoming November meeting. “This volatility suggests we may need to take a break in November,” Bostic commented.
Markets are concerned that the Federal Reserve may slow the pace of future rate cuts. According to CME Group’s FedWatch Tool, the likelihood of a 0.25% rate cut in November is about 85%, although the recent CPI data may complicate this outlook. Additionally, minutes from the September meeting showed divisions within the Fed, with some members preferring a smaller rate reduction than the half-percentage-point cut that was ultimately approved.
On the corporate front, Universal Insurance saw a 12% surge as Hurricane Milton impacted Florida, while Pfizer dropped by 3% after activist investor Starboard Value accused the pharmaceutical giant of attempting to litigate against two former executives. Meanwhile, Advanced Micro Devices fell 4% following the launch of a competing AI chip to Nvidia’s.
Stocks Finish Lower Amid Persistent Inflation Concerns
Stocks finished lower on Thursday, as Wall Street digested the latest consumer price index (CPI) data, which highlighted ongoing inflationary pressures.
The S&P 500 slipped 0.21% to close at 5,780.05, while the Dow Jones Industrial Average fell by 57.88 points, or 0.14%, ending at 42,454.12. The Nasdaq Composite lost 0.05%, closing at 18,282.05.
Earnings Season Could Boost S&P 500
Despite the day’s decline, the S&P 500 remains near an all-time high, and analysts at Oppenheimer suggest the upcoming earnings season could push the index even higher. Historically, the S&P 500 has gained an average of 2% in the first four weeks of earnings season.
The third-quarter earnings season begins unofficially on Friday, with JPMorgan Chase and Wells Fargo set to release results before the market opens.
Managed Futures Hedge Funds Move Beyond Inflation Trade
Some investors, particularly in managed futures hedge funds, are shifting away from inflation-focused strategies. According to Andrew Beer, co-founder of DBi, these funds have largely moved on from betting on inflation as a major market driver.
Beer’s firm, DBi, is the subadvisor for the iMGP DBi Managed Futures Strategy ETF (DBMF), which has returned about 9.5% year-to-date. “The portfolios are dynamic, reacting to a lot of market changes, but inflation no longer dominates the trade,” Beer said. Managed futures strategies had outperformed during the downturn in 2022 but have become more focused on short-term trades in the current volatile market environment.
As the market grapples with persistent inflation and evolving Federal Reserve policy, investors will closely watch upcoming earnings reports and economic data for further clues on the future direction of U.S. stocks.
