Stocks Rise as Inflation Data Surprises

On Wednesday, the last day of September, U.S. stock markets experienced gains following the release of new economic data indicating a slowdown in inflation last month. This news contributed to lower Treasury yields.

The Dow Jones Industrial Average increased by 39 points, or about 0.1%. Similarly, the S&P 500 rose by 0.4%, while the Nasdaq Composite saw a 0.6% uptick.

Specifically, the personal consumption expenditures (PCE) price index for August showed an annual increase of 3.4%, a decline from the previous month’s 3.7%. Economists had anticipated inflation to hold steady at 3.7%. Even more positive was the core PCE, which excludes food and energy, as it rose by 3% year over year—down from 3.3% the month prior and below what economists had projected.

In response to the inflation data, the 10-year Treasury yield fell from its highest level since 2007, settling at 5.23%. Meanwhile, the yield on the 30-year Treasury declined from heights not witnessed since June 2002. Throughout September, rising yields had weighed on stocks, with the S&P 500 down 0.2% as of Tuesday.

Market expectations regarding a Federal Reserve rate hike softened slightly. According to the CME Group’s FedWatch tool, there’s now a 35% chance of a quarter-point rate hike next month, a decrease from 51% the day before. Despite the recent inflation news, traders still anticipate another hike in December.

“Today’s inflation data is somewhat better than expected, but strong labor and GDP figures indicate that this won’t disrupt the ongoing expectation for another rate hike by year’s end,” remarked Adam Hetts, Global Head of Multi-Asset and Portfolio Manager at Janus Henderson Investors, in a statement to CNBC.

In other news, strong private sector data helped to counter the lighter inflation figures. According to ADP, 90,000 jobs were added in September, significantly surpassing the forecast of 68,000 jobs by economists.

In early trading, Micron was a standout performer among tech stocks, rising 1% ahead of its earnings report. Nvidia and Alphabet also traded higher. Robinhood emerged as a top gainer on Wednesday, with a 5% increase in premarket trading following its announcement of new trading tools and extended weekend hours.

As September and the third quarter come to a close, market performance has been a mixed bag during these periods.