U.S. stock indexes rebounded sharply on Wednesday from sharp early losses to end higher, led by a handful of influential Big Tech companies.
The Standard & Poor’s 500 rose 1.1%, after erasing a 1.6% drop in the morning when nearly all of the index’s components were down.The company’s shares still ended the day mostly lower, but performance from Nvidia and other tech stocks gave it a third straight gain, enough to bring it back to within 2% of its record high hit in July.
The Dow Jones Industrial Average rebounded from a 743-point drop to rise 0.3%, while the Nasdaq Composite rose 2.2%.
The Nasdaq saw a wild bounce back from a 1.4% drop after the government’s latest update on consumer-level inflation. Overall inflation slowed to 2.5% in August from 2.9% in July, slightly better than expected. But prices rose more than expected from July to August if food and energy are ignored, which economists say may provide a better forecast of where inflation is headed.
Taken together, the data appeared to confirm that the Fed does indeed plan to cut its key interest rate when it meets next week — the first cut in more than four years — but it bolstered expectations that the central bank will start off with only its more conventional quarter-point change, rather than the harsher half-point change that some had expected.
Investors have a long history of getting overly optimistic about when and how much the Fed will cut interest rates, only for stocks to fall when reality hits them. Wall Street likes lower interest rates because it makes borrowing cheaper for U.S. businesses and households and helps the economy. The downside to lower interest rates is that they could further fuel inflation.
“We think the market is pricing in even more rate cuts than we’ve seen this year,” said Gargi Chaudhry, chief investment and portfolio strategist for the Americas at BlackRock.
Now the Fed has signaled it is at least about to start cutting interest rates, shifting focus from fighting high inflation to protecting the job market and staving off a recession. With inflation falling from a peak of 9.1% two summers ago, the central bank wants to ease the brakes on an already slowing economy.
The worry on Wall Street is that the cuts may come too late, with many U.S. shoppers already struggling under the weight of high prices and stretched spending abilities.
Vera Bradley shares fell 4.6% after the handbag designer and parent company of the Pura Vida brand reported profits and revenue for its latest quarter that were below analysts’ expectations, citing “persistent macro consumer headwinds.”
Elsewhere on Wall Street, Trump Media & Technology Group Inc. slumped 10.5%, its worst performance since March. The company, which runs former President Donald Trump’s platform Truth Social, has often bounced back and forth on hopes of Trump’s possible reelection and as he comes off a debate with Vice President Kamala Harris.
Since closing above $66 in early March, the stock has fallen to $16.68, which is especially relevant for Trump, as he is the company’s largest shareholder.
Winners on 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 rose 15.2 percent.
Big Tech also lifted the market again. Some of these giant stocks have pulled away from the rest of the stock market, and they accounted for most of the S&P 500’s return through the start of the year, driven in large part by excitement over the artificial intelligence boom.
Nvidia’s stock price slumped over the summer as investors worried it had overpriced the company, with the company falling as much as 27%, but it has been performing well in recent weeks.
Nvidia’s 8.1% gain was the biggest driver of the S&P 500, along with gains of 2.8% from Amazon, 2.1% from Microsoft and 6.8% from Broadcom. Their moves carry more weight because these companies are among Wall Street’s largest by market capitalization — more stocks on the index than almost any other stock.
Overall, the S&P 500 rose 58.61 points to 5,554.13, the Dow Jones Industrial Average rose 124.75 points to 40,861.71 and the Nasdaq Composite added 369.65 points to 17,395.53.
In the bond market, the yield on the 10-year Treasury note rose to 3.66% from 3.64% late on Tuesday. The yield on the 2-year note, which is closer to the Fed’s expected action, rose further to 3.65% from 3.59%.
Overseas stock markets saw indexes fall across most of Europe and Asia.
Japan’s Nikkei stock average fell 1.5% after Japanese media quoted a central bank official as suggesting the Bank of Japan was preparing to raise interest rates. The comments also boosted the value of the Japanese yen against the U.S. dollar and helped roil financial markets around the world earlier in the summer.
Cho is a contributor to The Associated Press.
