Market News

Stock Market Today: Stocks Close Lower as Inflation Accelerates

First published : 7:13AM EST

Stocks closed Friday’s trading session in the red amid an increasingly uncertain economic climate and dismal company updates. The Dow Jones Industrial Average (DJIA), the S&P 500 (SPX), and the Nasdaq 100 (NDX) fell 1.71%, 1.51%, and 1.73%, respectively.

The technology sector (XLK) was the session’s laggard, as it fell by 2.1%. Conversely, the real estate sector (XLRE) was the session’s leader, with a gain of 1.09%. Furthermore, the U.S. 10-Year Treasury yield increased slightly to 3.82%. Similarly, the Two-Year Treasury yield also increased, as it hovers around 4.26%. This brings the spread between them to -44 basis points.

The Atlanta Federal Reserve updated its GDPNow reading, which allows it to estimate GDP growth in real-time. Currently, it estimates that the economy will see an annualized expansion of 2.4% in the third quarter after experiencing two consecutive quarters of decline. This is up from the previous reading of 0.3%. The “nowcast” becomes more accurate as more economic data is released throughout the quarter.

Moreover, the disappointing fiscal Q1 results of Nike continued to weigh on the markets and the stock continued its slide.

When it comes to oil, the commodity is seeing weakness as it closed down 2.1% to $79.52.

Core PCE Comes in Higher than Expected

The core personal consumption expenditure (PCE) report, which is the Federal Reserve’s favorite metric, indicated that core inflation continued to rise by 4.9% in August versus the same period last year (excluding food and energy). In addition, it increased 0.6% on a month-over-month basis.

Traders are gauging the near-term economic outcome after it became clear that the Federal Reserve will not back down until at least the end of the year. This is especially true since the core PCE report points to an acceleration in inflation compared to the previous month.

The Fed’s target inflation rate is between 2% and 3%, which the central bank expects to arrive at when the interest rates are between 4.4% and 4.6%. The bank is working on pulling up the rates to at least 4.4% by the end of this year. Currently, interest rates are in the 3%-3.25% range.

After the interest rates reach 4.6% and a few months of consistent cooling of inflation is achieved, the Fed is likely to ease its stance. However, the chances of that happening this year or far into the next, are very low. Investors are keenly watching every comment by the policymakers for any sign of dovishness, as the Fed has almost never given us incorrect indications, or made surprise moves.

The possibility that the Fed’s hawkishness can lead the U.S. economy into a deep recession continued to exact a toll on investor sentiments.

Major News of the Day

In other major earnings news, Micron reported mixed Q4 results. Arrival, the new EV startup truly marked its arrival as it completed its first vehicle.

Palantir Technologies chalked up another win as it secured a contract worth $59.1 million from the U.S. Army.


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