CPI weighs on midday stock market

Stocks rebounded from their morning losses by Wednesday afternoon. The S&P 500 inched up 0.05% by midday, while the Nasdaq Composite, led by tech stocks, climbed 0.85%. In contrast, the Dow Jones Industrial Average dipped 0.45%, and the Russell 2000 Index slipped 0.18%.

August's Consumer Price Index (CPI), a key measure of the cost of goods and services across the U.S. economy, increased by 0.2%, aligning with analysts' expectations.

Major stock indexes scored

All three major stock indexes scored large intraday comebacks with the help of dip-buyers on Wednesday, overcoming earlier weakness seen following the release of the August consumer-price index.

The Dow Jones Industrial Average finished up by 124.75 points, or 0.3%, at 40,861.71, based on preliminary data. It had been down by as much as 1.8% at its session low.

The S&P 500 closed up by 58.61 points, or 1.1%, at 5,554.13, after having fallen as much as 1.6% during the day.

The Nasdaq Composite ended up by 369.65 points, or 2.2%, at 17,395.53. It had declined as much as 1.4% earlier on Wednesday.

The stock market's rebound

Stocks rebounded sharply from Wednesday’s losses after a higher-than-expected core August consumer price index report. This reduced the likelihood of a 50-basis-point rate cut by the Federal Reserve next week.

Art Hogan, chief market strategist at B. Riley Wealth, noted that there wasn’t a clear reason for the market's recovery, nor was there for the initial selloff, as the 50-basis-point cut had never been the consensus expectation.

Stocks initially dropped following the release of the core consumer price index (CPI) data, which excludes the more volatile food and energy categories.

“Taken on its own, [CPI] is not terrible,” said Steve Sosnick, chief strategist at Interactive Brokers. “But what the market did not need was a core reading that was higher than expected. I think it was a big splash of cold water on a market that was hopeful that a 50 basis-point rate cut might be in the cards. Those expectations have all but evaporated.”

The core CPI rose slightly more than anticipated, tempering investor expectations for a half-percentage-point rate cut from the Federal Reserve. According to CME Group’s FedWatch tool, traders are now pricing in an 85% likelihood that the central bank will opt for a 25 basis-point rate cut at its upcoming Sept. 17-18 meeting. Despite this, the overall CPI reached its lowest annual growth rate since February 2021.

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