Key facts
- US inflation, measured by the PCE price index, rose 3.4% annually in August, below the 3.7% estimate.
- US private employers added 90,000 jobs in September, surpassing expectations.
- The probability of a Federal Reserve rate hike in October fell to 35% following the data.
- The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all traded higher on Wednesday.
- US economic growth in the second quarter was robust, fueled by consumer spending and AI infrastructure investment.
US stocks rallied on Wednesday as a softer-than-expected inflation report eased concerns that the Federal Reserve might raise interest rates again next month. The personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, rose 3.4% on an annual basis in August, below economists' estimates of 3.7% polled by Reuters.
Separately, second-quarter GDP data indicated that the US economy grew at a solid pace, driven by robust consumer spending and business investment related to the buildout of AI infrastructure. "The market had been tracing out a bullish formation, meaning the price pattern suggested that any positive catalyst could trigger a move higher and that’s exactly what happened," said Sam Stovall, chief investment strategist at CFRA Research.
Traders now estimate a roughly 35% chance of an October rate hike, down from about 45% before the data was released, according to LSEG data. The Federal Reserve faces pressure from the White House to lower rates after a previous increase earlier this month.
Inflation has become a key issue for voters ahead of the midterm elections, with Donald Trump receiving negative assessments for his economic management. At 9:55 a.m. ET, the Dow Jones Industrial Average was up 50.58 points, or 0.10%, to 51,400.50. The S&P 500 gained 33.17 points, or 0.43%, to 7,704.01, and the Nasdaq Composite rose 193.57 points, or 0.72%, to 26,991.11.
Five of the 11 S&P 500 sectors were trading higher, led by information technology and energy. Despite a weak September influenced by bond market volatility and elevated oil prices due to the US-Iran conflict, the S&P 500 and Nasdaq were on track for a second consecutive quarterly advance if current gains hold.
On Wednesday, the 10-year Treasury bond yield remained steady at 5.246%, a day after reaching its highest level since June 2007. Crude oil prices also increased, with the December contract for Brent crude futures moving higher.
Positive news also emerged from the jobs market. ADP, the largest US payroll processor, reported that private employers added 90,000 jobs in September, exceeding expectations and up from 36,000 in August. The Labor Department is scheduled to release its monthly jobs report on Friday, which is expected to show a gain of 84,000 for September.