U.S. equities were little changed on Wednesday as investors digested a hotter-than-expected inflation report and looked ahead to Nvidia's quarterly earnings, which could set the tone for the AI-driven market rally.
The S&P 500 edged up 0.1%, the Nasdaq Composite hovered near the flatline, and the Dow Jones Industrial Average added about 53 points, or 0.1%, shortly after the opening bell.
Inflation runs above forecasts
The Commerce Department reported that the personal consumption expenditures (PCE) price index rose 0.2% in July on a seasonally adjusted basis, pushing the annual rate to 3.7%. That was 0.1 percentage point above the Dow Jones consensus estimate. Core PCE, which strips out volatile food and energy prices, increased 0.2% month over month and 3.3% year over year, matching expectations.
The data underscore that inflation remains above the Federal Reserve's 2% target, even as the central bank weighs its next policy move. The Fed's preferred inflation gauge has been sticky, and the latest reading could reinforce the case for keeping interest rates higher for longer.
Consumer activity also came in stronger than expected. Personal income rose 0.4% in July, while personal spending increased 0.2%. Goods prices fell 0.1%, helped by a 2.7% drop in gasoline and other energy-related goods and a 0.9% decline in furnishings and durable household equipment. Services prices rose 0.3%, driven partly by a 1.2% increase in financial services and insurance and a 0.3% uptick in housing costs.
With the Federal Open Market Committee not scheduled to meet until September 15-16, markets are pricing in roughly a one-in-three chance of a rate move next month, with December currently seen as the most likely month for a hike.
Nvidia earnings in the spotlight
All eyes are on Nvidia, which is set to report fiscal second-quarter results after the bell. Wall Street expects earnings of $2.09 per share on revenue of $92.28 billion, according to FactSet. The company's massive weight in the S&P 500 — it is the largest constituent with a market cap above $5 trillion — means its results could move the broader market.
Investors will be looking for evidence that AI infrastructure spending remains robust enough to sustain Nvidia's rapid revenue growth. Guidance will also be scrutinized for signs of whether that momentum can continue. A strong report could reinforce confidence in the AI-driven earnings growth that has supported equities, while a miss could trigger a selloff in tech and chip names.
Nvidia's earnings come after a recent pullback in the stock, and options markets are signaling a potential $280 billion swing in market value. The company's results could also have ripple effects across the semiconductor sector, as seen in recent trading in Intel and AMD.
Fed speech and market outlook
Investors are also looking ahead to Federal Reserve Chairman Kevin Warsh's speech Friday at the central bank's annual symposium in Jackson Hole, Wyoming. The remarks could provide clues about the Fed's thinking on inflation and interest rates, though some expect Warsh to remain cautious ahead of the September policy meeting.
For markets, the combination of sticky inflation and Nvidia's results creates two competing forces: higher-than-expected price pressures could limit expectations for easier policy, while a strong Nvidia report could bolster confidence in the AI-driven earnings growth supporting equities. The tug-of-war between these factors is likely to keep volatility elevated in the near term.
This article is for informational purposes only and does not constitute financial advice.
