Wall Street Declines Amid Inflation Data Concerns

By Saeed Azhar, Johann M Cherian, and Purvi Agarwal

Wall Street's major indexes experienced a decline on Wednesday, with the Nasdaq leading the way downward. This drop came on the eve of Thanksgiving as technology stocks fell sharply due to concerns that the Federal Reserve might adopt a cautious approach regarding potential interest rate cuts in light of persistent U.S. inflation data.

Recent data revealed that consumer spending saw a solid increase in October, hinting that the U.S. economy continues to grow at a robust pace. However, this progress appears to be stalling when it comes to reducing inflation levels.

Traders have adjusted their expectations, increasing the likelihood that the Federal Reserve will reduce borrowing costs by 25 basis points in its upcoming December meeting. Conversely, they foresee that rates will likely stay unchanged in January and March meetings.

Meanwhile, investors are still considering the implications of President-elect Donald Trump's recent announcement to impose tariffs on imports from Mexico, Canada, and China unless they take action against the illegal flow of fentanyl and migrants into the U.S. Goldman Sachs pointed out that rising tariffs could hinder the return to the Fed’s 2.0% inflation target.

Preliminary data indicated that the S&P 500 index lost 22.85 points, or 0.38%, closing at 5,998.78 points. The Nasdaq Composite fell by 113.80 points, or 0.59%, ending at 19,061.78, while the Dow Jones Industrial Average saw a decrease of 136.31 points, or 0.31%, to close at 44,723.23.

Technology companies such as Dell and HP suffered after posting disappointing quarterly forecasts, which heavily impacted the Information Technology sector, causing it to lead sectoral declines. Major tech stocks like Nvidia and Microsoft were also affected by this negative sentiment, contributing to a decline in the Philadelphia SE Semiconductor Index.

This index has been sluggish following a record high reached earlier in the week. Investors are also digesting economic data showing that the economy grew at a healthy rate in the third quarter, alongside a drop in weekly jobless claims, which keeps expectations of another rate cut by the Fed alive for December.

Scott Welch, chief investment officer at Certuity, commented, "Inflation is proving to be more persistent than the Fed anticipated, which may lead them to hesitate regarding rate cuts." He also noted the uncertainties surrounding Trump's declared tariff policies and their potential inflationary effects, suggesting that the Fed would need to weigh economic data against the incoming administration's agenda.

The minutes from the Fed’s November meeting, released on Tuesday, showed that policymakers were uncertain about the future trajectory of interest rate cuts and the overall influence of current rates on the economy.

Despite the recent downturn, the benchmark index is on course for its largest monthly gain in a year and is positioned for its sixth gain in seven months, with markets still pricing in expectations that Trump’s policies may benefit domestic businesses and stimulate the economy.

In addition to the established tech giants, Workday's stock slipped following a revenue forecast for its fourth quarter that fell below expectations, as client spending on its human capital management software weakened.

WallStreet, Inflation, TechStocks