IXIC: Nasdaq Composite Stages Powerful U-Turn After Mixed Bag of Inflation Data

Tech-heavy index powered higher after investors realized that the higher-than-expected core CPI most likely shouldn’t take the interest rate cut away.

• The Nasdaq Composite IXIC shot sharply higher Wednesday after first diving underwater on some mixed signals in the inflation report. The tech-heavy index added 2.2% on the day, staging a reversal from a 0.5% intraday loss after investors had some trouble making sense of the most recent consumer price index. The reading showed headline inflation dropped to 2.5% in August, year-on-year. But the core reading flagged worries.
• The core consumer price index, which excludes volatile food and energy prices, rose 0.3% in August from the previous month. The growth clip was above analysts’ expectations for 0.2% and above July’s rise of 0.2%. And that slight overstep confused traders but — more importantly — put an end to hopes of a bigger interest rate cut this Wednesday at the Federal Reserve’s get-together.
• In this context, investors figured out that a rate cut of 25bps is the most likely scenario, instead of a 50bps cut. Once this realization kicked in, stocks staged a U-turn and finished the session in the green. The S&P 500 added 1% and the Dow Jones Industrial Average advanced 0.3%. Futures contracts tied to the benchmarks were pointing higher ahead of Thursday’s opening bell, looking to extend the good performance.