Wall Street holds back on big bets before CPI test

A slide in big tech and higher energy prices weighed on Wall Street sentiment ahead of inflation data that will help shape the outlook for the Federal Reserve’s next steps.

After briefly wiping out its losses, the S&P 500 finished near session lows.

The Nasdaq 100 dropped 1%. Nvidia, which has more than tripled this year amid the artificial-intelligence frenzy, slipped almost 5%.

Giants Tesla, Apple and Amazon.com were all down.

A 28% surge in European natural gas and an advance in oil to a nine-month high added to concern about further price pressures.

“Markets are vulnerable to a period of consolidation,” said Mark Hackett, chief of investment research at Nationwide.

“This is not uncommon during the seasonally weak August and September period, though the fundamental strength in economic and earnings data supports higher markets once we emerge from the malaise.”

Thursday’s consumer price index will show a wave of disinflation, but with oil prices rising, headline figures are likely to increase sharply in August, according to Anna Wong at Bloomberg Economics.

Still, unless inflation expectations climb substantially, policymakers will remain focused on the core numbers – which should keep moderating as growth slows, she noted.

“Risk-on” expectations for Thursday’s consumer price index have cooled relative to the last couple of reports, according to a survey conducted by 22V Research.

Investors aren’t “risk-off,” but are more ambivalent following a string of good releases.

The strong wage data from Friday’s employment data has likely gotten attention, the firm noted.

Even if inflation overshoots expectations, the Fed will likely feel its policy is restrictive enough as manufacturing struggles and the jobs market shows signs of softening, according to Fawad Razaqzada, a market analyst at City Index and Forex.com.

That means a “small beat” wouldn’t matter too much, he noted.

“A goldilocks outlook in the U.S. is what stock market investors on Wall Street have been enjoying this year - until the recent weakness,” Razaqzada added.

“They will be looking for signs that the health and sentiment of the consumer remains positive, enough not increase the risks of a further Fed rate increase, and yet not too depressing to raise recession alarm bells. Somewhere in between could support stocks.”

Meantime, bond investors wanted the newest Treasury 10-year notes badly enough that they were willing to settle for a yield of less than 4%.

The $38 billion auction was awarded at 3.999%, becoming the third straight 10-year new issue to pay a fixed rate of less than 4%.

Since the auction details were announced on Aug. 2, its bigger-than-anticipated size pushed the yield on the new 10-year in presale trading up toward 4.19% on Friday.

Ultimately, investors decided they could live on less.