Cooler August Inflation Data Triggers Tech Rally, Dow Remains Flat

Core personal consumption expenditures rose 0.2% in August, matching an annual rate of 3.0%, a figure that came in below economist expectations and prompted a shift in market pricing for future Federal Reserve actions. The surprise in the data allowed the Nasdaq Composite (^IXIC) to climb 1.1% and the S&P 500 (^GSPC) to gain 0.6% by 12:05 p.m. ET, while the Dow Jones Industrial Average (^DJI) finished exactly flat.

The market reaction was heavily concentrated in a handful of technology giants. Alphabet (GOOG, GOOGL) led the charge, jumping approximately 3.1% after signing a White House AI accord that includes audit commitments. This single move contributed 0.49 percentage points to the Nasdaq Composite's total gain. Apple (AAPL) followed with a 2.4% increase, erasing its previous day's losses on reports of an October 13 event featuring a new smart home hub. Nvidia (NVDA) added 1.6%, Microsoft (MSFT) rose 1.9%, and Amazon (AMZN) gained 2.0%. Together, these six stocks accounted for 1.11 percentage points of the Nasdaq's 1.14% rise, leaving the remainder of the market largely stagnant.

The Dow Jones Industrial Average presented a contrasting picture, with its price-weighted structure amplifying the impact of specific laggards. Caterpillar and Goldman Sachs each fell roughly 1%, effectively canceling out the gains from Alphabet, Microsoft, and Apple within the index's calculation. The 30 components of the Dow split evenly, with 15 stocks rising and 15 falling, reflecting a broader market where the average stock went nowhere. Equal-weight S&P 500 funds slipped slightly during the session, diverging from the cap-weighted index's rise.

The inflation data itself required context for investors. The Bureau of Economic Analysis changed its measurement methods for legal services, software, and computer accessories, revisions that lowered the July core PCE figure by 0.36 percentage points. Furthermore, the August data predates a surge in diesel prices in September. Despite the cooler reading, headline PCE inflation stood at 3.4%, well above the Federal Reserve's 2% long-term target, with gasoline prices alone rising 4.4% in August.

Traders responded to the data by moving their expected timeline for the next rate hike from October to December. This shift aligns with comments made Tuesday by New York Fed President John Williams, who stated there was no need for urgency following September's rate increase while allowing that another increase may be appropriate later this year. Second-quarter economic growth was also revised upward to 2.2% from 1.5%, though personal income rose only 0.2% last month compared to a 0.9% increase in spending.

Micron Technology (MU) is scheduled to report fiscal fourth-quarter results after today's close, an event that is expected to influence market sentiment tomorrow. The next major macroeconomic data point is the September jobs report, due Friday.