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(Reuters) – The S&P 500 ended lower on Friday as investors digested implications of a U.S. inflation report for the Federal Reserve’s interest rate policy and adjusted their portfolios on the last day of a weak third quarter for stocks.
The benchmark S&P 500 also posted its biggest monthly percentage drop of the year.
Data showed the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 3.9% on an annual basis for August, the first time in over two years it had fallen below 4%. The Fed tracks the PCE price indexes for its 2% inflation target.
The data revealed a “better than expected but still elevated inflation picture,” said Eric Freedman, chief investment officer at U.S. Bank Asset Management.
Meanwhile, Freedman said, “we are at quarter end, and with quarter end comes all sorts of activities across both the stock and bond markets.”
According to preliminary data, the S&P 500 lost 11.37 points, or 0.26%, to end at 4,288.33 points, while the Nasdaq Composite gained 18.05 points, or 0.18%, to 13,224.52. The Dow Jones Industrial Average fell 145.92 points, or 0.46%, to 33,511.55.
Among S&P 500 sectors, energy and financials declined sharply. Energy remained by far the biggest-gaining sector for the third-quarter.
“Energy and financials have been up on a relative basis and they are feeling some rebalancing effect today,” Freedman said.
All the three major indexes had their first quarterly declines in 2023.
The highly anticipated PCE data followed last week’s hawkish longterm outlook for rates from the Fed, which has rattled stocks as benchmark Treasury yields climbed to 16-year highs.
“Equity investors are finally waking up to the Fed and the Fed comments that it is going to be higher for longer, and there is an alternative to stocks,” said Paul Nolte, senior wealth advisor and market strategist for Murphy & Sylvest Wealth Management.
Investors were also watching Washington. Hardline Republicans in the U.S. House of Representatives rejected a bill proposed by their leader to temporarily fund the government, making it all but certain that federal agencies will partially shut down beginning Sunday.
Traders were also wary that a $16 billion JP Morgan fund, expected to reset its options positions on Friday, would be another source of market volatility.
In company news, Nike (NYSE:NKE) shares jumped after the world’s largest sportswear maker topped Wall Street estimates for first-quarter profit.
