Cooler inflation, higher yields, and a record Micron quarter

Wednesday delivered the inflation number investors wanted and stocks fell anyway. The Fed’s preferred price gauge came in well below forecasts, but long-term Treasury yields rose regardless, and that is the thing to understand before today’s open: good inflation news did not bring borrowing costs down.

Good inflation news, and yields rose anyway

The PCE price index rose 3.4% in August from a year earlier, against expectations of 3.7%, and the core measure that excludes food and energy rose 3.0% against a 3.3% forecast, per CNBC. Traders responded by cutting the chance of a Fed rate hike next month to 37%, from about 50% a day earlier, per the Associated Press.

The bond market’s long end did not follow. The 10-year Treasury yield ended at 5.29%, up from 5.26% late Tuesday, and the 30-year rose to 5.64% from 5.59%, while the 2-year held at 4.89%, per the AP. Stocks opened higher on the inflation report and then turned lower after separate data suggested the economy was stronger in the spring than earlier thought, which kept yields high, the AP reported. In our feed the long-bond fund TLT fell 0.58% to $77.78.

That is the disagreement worth noticing. The story since last week has been that inflation is what is pushing yields up. On Wednesday inflation cooled and long yields rose anyway, so something else, such as strong growth or heavy government borrowing, is doing part of the work.

Separately, President Trump said former Fed Chair Jerome Powell, who remains a governor, should be forced to resign from the board. That followed a report from the Fed’s inspector general that faulted the management of the headquarters renovation, whose cost grew to $2.4 billion from $1.3 billion, but found no basis to suspect a crime, per CNBC and Bloomberg.

A split market: tech up, nearly everything else down

The S&P 500 fell 19.30 points to 7,651.54 and the Dow lost 443.87 points, or 0.9%, to 50,906.05, while the Nasdaq Composite rose 0.2% to 26,861.06, per the AP. The S&P 500 finished September down 0.7% but ended the third quarter up 2%, per CNBC.

In our feed, 73 of the 100 stocks and funds we track fell and 27 rose. (One of the decliners, Block, shows a quote unchanged from Tuesday and looks stale, so read that as 72 of 99.) The S&P 500 fund SPY fell 0.21%, the Dow fund DIA 0.84% and the small-cap fund IWM 0.40%, while the Nasdaq-100 fund QQQ rose 0.25%.

The selling was concentrated in three places:

Financials. The sector fund XLF fell 1.13%. Morgan Stanley (MS) fell 2.43%, Mastercard (MA) 2.15%, Goldman Sachs (GS) 1.73% and JPMorgan (JPM) 1.24%.
Health care. The sector fund XLV fell 1.35%. Merck (MRK) fell 2.66%, Eli Lilly (LLY) 2.33% and UnitedHealth (UNH) 2.10%.
Consumer staples. Walmart (WMT) fell 2.70% to $103.92 after chief executive John Furner said the company will not use AI to charge individual shoppers different prices, and as Target announced cuts on nearly 2,000 items, per Yahoo Finance and Investing.com. Procter & Gamble (PG) fell 2.05% and Altria (MO) 2.01%.

We did not find a single story behind the bank and drugmaker declines beyond the rise in yields.

Robinhood (HOOD) fell 3.20% to $112.50, even after unveiling AI-driven trading and US perpetual futures at its annual event, per Yahoo Finance.

Software and Intel carried the Nasdaq

The gainers were almost all technology. Intel (INTC) rose 3.71% to $120.23, the best move in our feed, capping what 24/7 Wall St. called a surprisingly strong September for the stock.

Software had its best day in a while. MongoDB (MDB) rose 3.39% to $348.61 after its board approved an additional $1 billion share buyback, per the AP. ServiceNow (NOW) rose 3.13%, Adobe (ADBE) 2.90%, Snowflake (SNOW) 2.80% and Salesforce (CRM) 1.89%. Beyond MongoDB’s buyback, we could not confirm one cause for the group’s move.

The largest companies were modestly higher: Apple (AAPL) rose 1.10%, Amazon (AMZN) 1.01%, Alphabet (GOOGL) 0.93% and Microsoft (MSFT) 0.77%. Meta Platforms (META) was the exception, falling 1.84%.

Micron: a record quarter and a bigger bill

Micron reported after the close, and the numbers were large. Adjusted earnings were $33.42 a share against a $31.16 forecast, on revenue of $54.23 billion against $50.45 billion expected, per CNBC. It was the company’s sixth straight quarterly sales record. For the current quarter Micron guided to revenue of about $61.5 billion and adjusted earnings of $38.15 a share.

The stock did not rally on it. Micron also said capital spending will be about $11.5 billion this quarter and $25 billion over the first half of its fiscal year, mostly to build factory space for memory chips, per GuruFocus. Yahoo Finance and Investing.com had the shares down roughly 1% after hours, near $1,056. Our feed has Micron (MU) closing at $1,065.11, flat on the day, with a last after-hours print of $1,069, so the late move was small either way.

The market read elsewhere was more upbeat: chip stocks led Asia overnight, and Nasdaq futures rose on the results, per Newsquawk.

Overnight

Japan’s Nikkei 225 rose about 3%, with chipmakers lifted by Micron’s results, per Newsquawk. Australia’s ASX 200 fell 1.7% with every sector lower. South Korea’s KOSPI recovered into positive territory. Markets in Hong Kong and mainland China are closed for the National Day holiday.

Oil pulled back. Brent crude had settled Wednesday up 1.9% at $98.03 a barrel, per the AP; overnight, Brent was down 1.2% and WTI down 1.7% on quiet geopolitical news, per Newsquawk. Talks between the US and Iran remain stalled, though a White House official said a deal is still possible.

S&P 500 futures were up about 0.6% and Nasdaq-100 futures about 1.1% early, while European futures pointed lower, per Newsquawk. Our feed has no Thursday pre-market trades yet.

What to watch today

Challenger job-cut report for September at 7:30 a.m. ET.
Weekly initial jobless claims at 8:30 a.m. ET.
ISM manufacturing index for September at 10:00 a.m. ET.
Construction spending for August at 10:00 a.m. ET.
Several Fed officials are scheduled to speak.
Accenture and McCormick report results today.
Nike reports fiscal first-quarter results after the close. Consensus is earnings of $0.44 a share on revenue of $11.33 billion, per AlphaStreet.
The 10-year Treasury yield, which ended Wednesday at 5.29%.
Friday: the September jobs report at 8:30 a.m. ET.

Not financial advice. iTrading Buddy summarizes publicly available market data and news; every figure above is sourced from the reporting available before the US open on the date shown. Verify anything you act on.