The economy grew 3.4% and inflation hit 3.6%, but Alphabet still dragged the Nasdaq down 1.4%
Third-quarter GDP beat forecasts and September PCE inflation rose to its hottest annual pace since May. Treasury yields fell anyway as money moved out of tech, the 10-year ended just under 5%, and oil settled at $102.
Photo: david hou / Pexels
A day after the Federal Reserve held rates steady, Thursday delivered a strong economy, hotter inflation and a tech sell-off, all before lunch. By the close, the tech sell-off had won.
The S&P 500 fell 23.59 points, or 0.30%, to 7,720.39, according to Reuters. The Dow Jones Industrial Average lost 132.54 points, or 0.25%, to 52,342.56, and the Nasdaq Composite dropped 365.13 points, or 1.37%, to 26,184.72. Yahoo Finance data matched those closes. The S&P 500's loss ended a three-day winning streak, Investor's Business Daily and StockTitan noted.
The weakness was narrow. The small-cap Russell 2000 rose 1.0%, Reuters said, and at midday advancing issues outnumbered decliners by 1.97-to-1 on the NYSE. Most of the damage came from Alphabet, which fell 12.6% after its quarterly report, and from Caterpillar, which dropped 9.25%. Chip stocks snapped a four-day winning streak, with the semiconductor index down 1.4%, according to Reuters. The Cboe Volatility Index rose 1.71% to 17.20, Yahoo Finance data show.
Growth beat, inflation rose
Real gross domestic product grew at a 3.4% annual rate in the third quarter, the Bureau of Economic Analysis said in its first estimate, up from 2.2% in the second quarter. Economists had expected 3.1%, according to CNBC. Consumer spending grew at a 3.8% pace, matching the second quarter, KPMG said, and real final sales to private domestic purchasers rose 4.9%, according to the BEA.
Inflation moved the other way from what the Fed wants. The personal consumption expenditures price index, the Fed's preferred gauge, rose 0.5% in September from August, in line with the Dow Jones consensus, CNBC reported. Over 12 months it rose 3.6%, slightly below the 3.7% economists expected but above August's pace. KPMG said it was the hottest annual reading since May.
Core PCE, which excludes food and energy, rose 0.3% in the month and 3.1% from a year earlier, in line with forecasts, according to IBTimes and KPMG. Energy did much of the work: KPMG said prices for gasoline and fuel oil rose more than 9% in September. It also said the personal saving rate fell to 3.8%.
Rate-hike odds eased a little
Traders still expect the Fed to raise rates in December, just slightly less firmly than on Wednesday. CME's FedWatch tool put the odds of a quarter-point hike at 79.6% on Thursday, down from 84.2% on Wednesday, IBTimes reported. TMTPost, also citing FedWatch, put the probability at 81.3% after the data, from 83.0% before it. CNBC said markets priced a more than 77% chance.
"Investors should expect the Fed Funds rate to continue to rise as a result." - Stephen Coltman, head of macro at 21shares, to CNBC
Coltman told CNBC that Thursday's data would not change Chair Kevin Warsh's view of a strong economy with inflation above target.
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Bonds rallied anyway
Treasuries rose despite the hot data as money moved out of tech stocks and into government bonds, Yonhap Infomax reported. The 10-year yield ended at 4.98%, down from 5.05% on Wednesday, according to Treasury Department data. The 2-year yield fell to 4.61% from 4.67%, and the 30-year ended at 5.32%, down from 5.37%. Yahoo Finance's 10-year index closed at 4.99%.
Oil gives back some of Wednesday's jump
West Texas Intermediate crude settled down 78 cents, or 0.76%, at $102.00 a barrel, and Brent settled 44 cents lower at $114.88, Reuters reported. Both had fallen more than $2 earlier in the session on hopes for peace talks between the United States and Iran, unwinding part of WTI's 3% gain on Wednesday.
Gold slipped. Spot gold traded near $4,011 to $4,022 an ounce late Thursday, down roughly 0.8% to 1.4% depending on the data provider and time, according to market data providers.
What carries into Friday
Amazon and Intel both fell in after-hours trading on their results, so the open will show whether the AI-spending worries spread further. The Fed's next decision is on Dec. 9, and with inflation at 3.6%, every data release between now and then will be read through the December question.
