TOKYO – U.S. stock indexes stormed back from big early drops on Wednesday to finish higher, led by a handful of influential Big Tech companies.
The S&P 500 rallied 1.1% after erasing a morning wipeout of 1.6%, one where almost every stock within the index had been falling. A majority of the index’s stocks still finished lower for the day, but the performances by Nvidia and other tech stocks were enough to drive it to a third straight gain and back within 2% of its all-time high set in July.
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The Dow Jones Industrial Average rose by 124 points, or 0.3%, after rallying back from a drop of 743 points. The Nasdaq composite jumped 2.2%.
The sharp see-saw trading, where the Nasdaq composite roared back from an earlier 1.4% slide, followed the government’s latest update on inflation at the consumer level. Overall inflation slowed to 2.5% in August from 2.9% in July, a touch better than expected. But prices rose more than expected from July into August when ignoring food and energy, and economists say that can be a better predictor of where inflation is heading.
All together, the data seemed to confirm that the Fed will indeed cut its main interest rate at its meeting next week, which would be the first such cut in more than four years. But it bolstered expectations that the Fed will begin with only a traditional-sized move of a quarter of a percentage point instead of the more severe half-point that some had been expecting.
Investors have a long history of being overly optimistic about how much and when the Fed will cut interest rates, only to send stock prices lower after being confronted with reality. Wall Street loves lower rates because they can goose the economy by making it cheaper for U.S. companies and households to borrow. The downside of lower rates is that they can give inflation more fuel.
“We believe the market is pricing in more rate cuts than what will occur this year,” said Gargi Chaudhuri, chief investment and portfolio strategist, Americas at BlackRock.
This time, the Fed at least has already indicated it’s about to begin lowering interest rates as it shifts from fighting high inflation toward protecting the job market and keeping the economy out of a recession. With inflation down from its peak of 9.1% two summers ago, the Fed is hoping to ease the brakes off the already slowing economy.
A worry on Wall Street is that the cuts may prove to be too late, with many U.S. shoppers already struggling under the weight of high prices and stretched ability to spend more.
Vera Bradley’s stock dropped 4.6% after the designer of handbags and the parent company of the Pura Vida brand reported weaker profit and revenue for the latest quarter than analysts expected. It pointed to “stubbornly persistent macro consumer headwinds.”
Elsewhere on Wall Street, Trump Media & Technology Group sank 10.5% to worsen its rough run since March. The company behind former President Donald Trump’s Truth Social platform has often risen and fallen with expectations for Trump’s re-election chances, and he’s coming off a debate with Vice President Kamala Harris.
Since closing above $66 in early March, the stock has tumbled to $16.68. That affects Trump particularly because he is the company’s largest shareholder.
On the winning side of the U.S. stock market were solar-energy companies, which are seen as doing better under a Democratic White House than a Republican one. First Solar jumped 15.2%.
Big Tech also once again lifted the market. A handful of these behemoths has pulled away from the rest of the stock market and accounted for most of the S&P 500’s return through the early part of this year, in large part on excitement about the artificial-intelligence boom.
They faltered during the summer on worries that investors had carried their stock prices too high, including a 27% drop for Nvidia at one point, but they’ve been firming in the last couple weeks.
Besides the 8.1% jump for Nvidia, gains of 2.8% for Amazon, 2.1% for Microsoft and 6.8% for Broadcom were the strongest forces lifting the S&P 500. Because these companies are among Wall Street’s largest by market value, their movements pack more punch on the index than almost every other stock.
All told, the S&P 500 rose 58.61 points to 5,554.13. The Dow rose 124.75 to 40,861.71, and the Nasdaq composite jumped 369.65 to 17,395.53.
In the bond market, the yield on the 10-year Treasury rose to 3.66% from 3.64% late Tuesday. The two-year yield, which more closely follows expectations for Fed action, rose more, to 3.65% from 3.59%.
In stock markets abroad, indexes fell across much of Europe and Asia.
Japan’s Nikkei 225 dropped 1.5% after a Japanese central bank official was quoted by Japanese media as indicating the Bank of Japan was getting ready to raise interest rates. The comments also pushed the value of the Japanese yen higher against the U.S. dollar, a move that earlier in the summer helped send financial markets around the world reeling.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.