Stocks finish mixed as cooler inflation meets climbing yields: Wednesday recap

Stocks ended September on a divided note. The Dow Jones Industrial Average fell 0.86% to 50,906.05, a drop of nearly 444 points and the weakest of the major benchmarks. The S&P 500 slipped 0.25% to 7,651.54. The Nasdaq Composite went the other way, rising 0.24% to 26,861.06. It was the final trading day of the third quarter, and the three gauges closed it pointing in different directions.

The sector board leaned heavily red. Technology was the lone gainer, up 0.64% and the only major group to finish higher. Everything else fell. Consumer staples brought up the rear, down 1.53%, with health care off 1.35% and industrials down 1.27% just ahead of it. Financials lost 1.13% and real estate 1.04%. Utilities fell 0.68% and materials 0.81%, while communication services held up better than most, off 0.45%. Energy nearly escaped the selling, down just 0.06%. The spread between the best and worst groups ran just over two points, wider than the shallow move in the headline indices suggested.

The day’s marquee data point was the Commerce Department’s August reading on the personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge. Headline PCE rose 0.3% on the month and 3.4% from a year earlier. The core measure, which strips out food and energy, rose 0.2% in August and 3.0% over the past year. Both figures came in below what economists had expected, softening the case for another Fed rate increase in the months ahead. The release followed the bureau’s annual benchmark revisions, which had trimmed some earlier inflation readings. Treasury yields still climbed. The 10-year note finished the session at 5.24%, and that move weighed on the rate-sensitive parts of the market, from consumer staples to real estate and utilities.

Breadth reinforced the picture. Small caps lagged, with the Russell 2000 tracker down 0.40% as the more rate-sensitive end of the market gave ground. The advance in technology was enough to keep the Nasdaq green but not to carry the broader tape with it. A handful of the largest names did the heavy lifting while the average stock drifted lower.

Volatility stayed calm. The Cboe Volatility Index sat at 16.34, low by historical standards even after a small uptick on the session. The day’s real action was in the bond market. The week finished lower for the large-cap averages as well, with the S&P 500 tracker down 0.7% and the small-cap tracker off 1.4%. The Nasdaq tracker was little changed over the five sessions, down 0.2%, while the Dow tracker fell 1.1%.

With the third quarter now on the books, attention turns to October and a fresh slate of economic releases, including the monthly employment report and the next reading on consumer prices. Earnings season begins soon. The first third-quarter results are due in the weeks ahead. Quarter-end can bring its own churn as funds rebalance, which often adds noise to the closing sessions of a period. For a market weighing cooler inflation against firmer yields, the incoming data will set the tone.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.