By Sinead Carew and Shashwat Chauhan
(Reuters) – All three major U.S. stock indexes closed higher on Wednesday, as gains in technology shares offset investor disappointment over an early morning inflation report that dashed hopes the Federal Reserve would cut interest rates by 50 basis points next week.
The technology index opened lower thanks to an 8% rise in AI chipmaker Nvidia (NASDAQ:) before closing up 3.3%. A Semafor report that the U.S. government is considering allowing Nvidia to export advanced chips to Saudi Arabia also helped drive gains.
Political developments also influenced market sentiment, a day after Democratic candidate Kamala Harris put Republican candidate Donald Trump on the defensive in a heated US presidential debate.
Earlier, the Labor Department announced that the Consumer Price Index (CPI) rose 0.2% last month, the same level as in July. The core CPI, which excludes volatile food and energy items, rose 0.3% from the previous month, beating economists’ expectations of a 0.2% increase.
Traders revised their odds of a 25 basis point rate cut by the Fed to 85% from 66% on Tuesday, while the probability of a 50 basis point cut fell to 15% from 34% a day earlier, according to CME Group’s (NASDAQ:) FedWatch tool.
“Perhaps the market was hoping for more moderate inflation that would give the Fed a reason to cut rates by 50 basis points next week,” said Jack Janasiewicz, portfolio manager at Natixis. “The report was in line with, or slightly higher than, expectations, which puts the Fed under a bit of pressure to stick to a 25 basis point cut.”
Janasiewicz said investors may have come to terms with the inflation numbers as the days have passed, but he also pointed to technology as the standout factor that has “supported the market overall.”
The Index rose 124.75 points, or 0.31%, to 40,861.71, the S&P 500 rose 58.61 points, or 1.07%, to 5,554.13 and the Index rose 369.65 points, or 2.17%, to 17,395.53.
Six of the 11 major sectors in the S&P 500 rose, with Consumer Discretionary posting the second-largest gain at 1.3%. Energy was down 0.93%, followed by Consumer Staples, down 0.88%.
The S&P 500 financial index pared its losses to close down just 0.39%, after having fallen more than 2% at its intraday low.
The most profitable American Express (NYSE:)’s financial chief said at a conference that credit is strong and consumer spending is stable.
Big U.S. banks also rose, recovering from an early sell-off. Goldman Sachs closed up 0.9% and JPMorgan finished up 0.8%. The sector was hit on Tuesday by warnings of falling trading revenue, a slower-than-expected recovery in investment banking and an expected hit to interest income from looming interest rate cuts.
With the presidential debate over and eight weeks left until the election, bets on political betting platform PredictIt have risen from 53 cents before the debate to 57 cents, with a payout of $1, while bets on Trump have risen from 52 cents before the debate to 48 cents.
As a result, stocks expected to perform well under Trump fell, including cryptocurrency and blockchain stocks and prison operators. Trump Media & Technology Group Inc.’s shares fell 10.5%.
Meanwhile, solar stocks that are likely to benefit from a Harris administration rose, with First Solar (NASDAQ:) up 15.2%, Sunrun (NASDAQ:) up 11.3% and SolarEdge Technologies (NASDAQ:) up 8.5%.
The debate provided little clarity for Wall Street on major policy issues, but some market watchers said Ms Harris’ proposal to raise corporate taxes could hit corporate profits, while Mr Trump’s tough stance on tariffs could spur inflation.
Shares of video game retailer GameStop Corp. (NYSE:) fell about 12% after the company filed for an initial public offering of up to 20 million shares and said its second-quarter earnings fell.
Shares in lithium mining companies soared after Chinese battery giant CATL announced plans to adjust its lithium carbonate production in Yichun. Albemarle Lithium Reserve Company (NYSE:), one of the world’s largest lithium mining companies, saw its shares rise 13.6%.
Advancing stocks outnumbered declining stocks on the New York Stock Exchange by a ratio of 1.4 to 1, with 342 stocks setting new record highs and 130 new record lows.
Advancing issues outnumbered declining ones on the Nasdaq by a ratio of 1.24 to 1, with 2,337 issues rising and 1,882 issues falling. The S&P 500 posted 21 new 52-week highs and 17 new lows, while the Nasdaq Composite posted 48 new highs and 129 new lows.
On U.S. exchanges, 12.19 billion shares were traded, compared with the 20-day moving average of 10.8 billion.
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