U.S. stocks pulled back from record highs on Friday after fresh economic data signaled that inflation remains stubbornly above the Federal Reserve’s 2% target. The update left investors digesting the implications for interest rates ahead of the central bank’s September meeting.

The Dow Jones Industrial Average (^DJI) closed down roughly 0.5%, while the S&P 500 (^GSPC) lost 0.8%. Leading the retreat, the Nasdaq Composite (^IXIC) slipped over 1%, weighed down by a sell-off in major technology names.

Big Tech bore the brunt of Friday’s decline. Nvidia (NVDA) shares dropped more than 3%, coming just days after the chipmaker unveiled its much-anticipated earnings report.

STORY HIGHLIGHTS

• Dow Jones dropped 0.5%, S&P 500 fell 0.8%, Nasdaq tumbled over 1%.

• Nvidia stock sank 3% despite strong earnings earlier this week.

• Core PCE inflation rose 0.3% monthly and 2.9% annually, above Fed’s 2% target.

• Consumer confidence slid to a three-month low, inflation expectations jumped.

• Traders still price in 87% chance of Fed rate cut in September.

• Nasdaq eyes five-month winning streak despite Friday’s losses.

• Markets closed Monday for Labor Day holiday.

Inflation Data Signals Persistent Pressure

The core Personal Consumption Expenditures (PCE) index, a key metric the Federal Reserve closely monitors, rose 0.3% on a monthly basis and 2.9% annually in July. Both figures were in line with analyst expectations but still well above the Fed’s 2% inflation target.

“The annual increase marks the largest since February,” said an analyst at a leading Wall Street firm. “It reinforces the idea that inflation is sticky, even if it’s not accelerating at a rapid pace.”

Adding to concerns, a University of Michigan survey showed that consumer sentiment dropped to a three-month low, with respondents expecting inflation to pick up over the next year.

Traders Keep Bets on Rate Cuts Despite Hot Data

Despite the hotter-than-desired inflation reading, Wall Street hasn’t shifted dramatically in its expectations for the Federal Reserve’s next move. Market data on Friday indicated that traders still assign an 87% probability to a quarter-point rate cut at the September meeting.

“This PCE report was widely anticipated, and the numbers came in exactly as expected,” noted one market strategist. “For now, the market narrative remains focused on an easing cycle, not a reversal.”

Tech Sector Drags Nasdaq Lower

Technology stocks, which have been leading the market higher in recent months, saw sharp declines Friday. Nvidia (NVDA), a key driver of this year’s tech rally, dropped more than 3%, erasing some of the gains it made after its blockbuster earnings release earlier in the week.

“The profit-taking in Big Tech isn’t surprising after such a strong run,” an equity analyst explained. “Nvidia has been at the center of the AI trade, so even a slight shift in sentiment can lead to big moves.”

Indexes Still on Track for Longest Winning Streak in Months

Despite Friday’s setback, the broader picture for U.S. markets remains upbeat. The Nasdaq Composite is still up about 2% in August, on course for its fifth consecutive monthly gain, the longest winning streak in nearly 18 months.

Similarly, the S&P 500 and the Dow Jones Industrial Average are both headed for their fourth straight month of gains, rising about 1.6% and 2%, respectively — the longest streak since September 2024.

Meanwhile, the Russell 2000 (^RUT), which tracks smaller companies, is set to jump 6% this month, marking its best four-month performance in over four years.

Political Drama Adds to Busy Week

This week wasn’t just about inflation data and earnings. Markets were also watching political headlines after President Trump intensified efforts to remove Fed Governor Lisa Cook. On Friday, a judge was expected to rule on Cook’s request for a temporary restraining order, adding another layer of uncertainty to an already eventful week for investors.

Markets will remain closed on Monday for the Labor Day holiday, reopening Tuesday for what could be another critical week for Wall Street.

Friday’s market pullback highlighted the delicate balance between investor optimism and economic reality. While inflation remains above the Federal Reserve’s target, traders are still betting on a rate cut in September, signaling confidence that policy easing is on the horizon. Despite the day’s losses, the Nasdaq, S&P 500, and Dow Jones remain on track for multi-month winning streaks, underscoring the resilience of U.S. equities. With markets closed for Labor Day, investors will look to next week for fresh cues on whether the Fed will prioritize inflation control or growth momentum in the months ahead.

Appreciating your time:

We appreciate you taking the time to read our most recent article! We appreciate your opinions and would be delighted to hear them. We value your opinions as we work hard to make improvements and deliver material that you find interesting.

Post a Comment:

In the space provided for comments below, please share your ideas, opinions, and suggestions. We can better understand your interests thanks to your input, which also guarantees that the material we offer will appeal to you. Get in Direct Contact with Us: Please use our “Contact Us” form if you would like to speak with us or if you have any special questions. We are open to questions, collaborations, and, of course, criticism. To fill out our contact form, click this link.

Stay Connected:

Don’t miss out on future updates and articles.