The Dow Jones Industrial Average ended Wednesday with its steepest monthly decline since March, a performance that highlighted investor hesitation despite cooler-than-expected inflation data. The broader market showed mixed results, with the S&P 500 falling 0.3% and the Nasdaq 100 rising 0.2%, while the Russell 2000 index of small-cap stocks dropped 0.7%. This divergence suggests that the recent drop in inflation metrics has not yet convinced all market participants to reverse their bearish stance on traditional large-cap value stocks.
The personal consumption expenditures price index, a key measure of inflation, rose 3.4% annually in August, down from an initial 3.7% reported for the prior month which was later revised to 3.4%. Core PCE, which excludes volatile food and energy costs, slowed to 3% annually from 3.3% previously, landing below market projections. Despite these favorable numbers, fixed-income markets remained tense. The benchmark 10-year Treasury yield ticked up 1 basis point to 5.27%, staying near multi-decade peaks, while the 30-year yield climbed 3 basis points to 5.62%. The persistent elevation of these yields appears to be weighing on equity valations, particularly for the Dow.
The cooler inflation reading did shift expectations regarding Federal Reserve policy. According to the CME FedWatch tool, bets for a rate hike in October fell to 37% on Wednesday from 51% earlier in the week. David Russell at TradeStation told Bloomberg that the data is good news for investors worried about the recent surge in bond yields and bolsters the case for the Fed not hiking in October. Retail sentiment on Stocktwits for major ETFs like QQQ, SPY, and DIA remained "bullish" with high message volumes, indicating a disconnect between retail optimism and institutional caution.
Sector performance reflected a continued rotation toward technology and semiconductors. The VanEck Semiconductor ETF (SMH) and iShares Semiconductor ETF (SOXX) both rose about 0.5%, tracking gains in Nvidia, Micron Technology, and Advanced Micro Devices. The broader Vanguard Information Technology ETF (VGT) added about 0.9%. The Nasdaq 100 finished the month about 3.2% higher, driven by strength in chipmakers such as AMD, Intel, Arm Holdings, and Marvell Technologies.
Corporate news also dominated the session. MGM Resorts International CEO Bill Hornbuckle opened the door to a potential takeover of People Inc., an unexpected turn after Barry Diller's firm scrapped its own attempt to acquire the casino giant. In the technology sector, SpaceXAI is reportedly reviewing a rewrite of how it sells the Grok chatbot and the X social network. Additionally, the Federal Trade Commission is launching a broad inquiry into artificial intelligence developers, including OpenAI and Anthropic PBC, to evaluate consumer risks and product safety standards.
Apple Inc. is set to sell about 6 million units of the iPhone Duo this year, according to Counterpoint Research. Meanwhile, Taiwan Semiconductor Manufacturing Co. is reportedly evaluating a potential investment in Texas to expand its chip production footprint in the U.S., a move that could further entrench its presence in American manufacturing.