US STOCKS-Wall St muted ahead of Nvidia results, hot inflation fuels rate-hike bets

Wall ‌Street's ​main indexes were subdued on Wednesday as investors stuck to the sidelines ahead of AI bellwether Nvidia's quarterly earnings, while hotter-than-expected inflation bolstered bets on a September interest rate hike.

A Commerce Department report showed that annual U.S. inflation increased 3.7% in the 12 months through July, ‌just above the 3.6% expected by analysts, while the economy grew 1.5% in the second quarter, a revised estimate showed. The case for a Federal Reserve interest rate hike strengthened slightly after the data, with Fed funds futures showing about a 44% chance of a September rate increase, up from roughly 36% just before the data release.

"We're clearly still in a period where inflation is sticky and ‌it's temporarily putting upward pressure on interest rates - an important factor in keeping this bull market for stocks going," said Jeff Buchbinder, chief equity strategist at LPL Financial. On the S&P ‌500, information technology and industrials were the biggest boosts, rising 0.3% and 1% respectively.

Microsoft and Apple led gains among megacaps, each rising 0.5%. AI chip giant Nvidia lost 0.4% ahead of its closely watched quarterly report. Anything less than a stellar report could rekindle doubts about the sustainability of the AI boom and set the tone for tech stocks for the rest of the week.

"This market is a tug of war between earnings and interest rates and, up ⁠to this ​point, earnings have been winning that battle. As long ⁠as the fundamentals remain strong, (the) market is going to hold up okay," said Buchbinder. Bumper results could also deepen the divide between software stocks that have taken a beating this year, and semiconductors, which have capitalized heavily on ⁠the AI euphoria.

At 09:53 a.m. ET, the Dow Jones Industrial Average fell 21.54 points, or 0.04%, to 53,555.86, the S&P 500 gained 2.24 points, or 0.03%, to 7,679.52 and the Nasdaq Composite lost 13.85 points, ​or 0.06%, to 26,137.16. Meanwhile, financials on the blue-chip Dow lost some ground. Declines in Alphabet and some healthcare stocks kept the S&P 500 and Nasdaq rangebound.

Among stocks, Meta ⁠agreed to pay a maximum $16.68 billion and make major changes to Facebook and Instagram to resolve claims by U.S. states of harm to children. Its shares, however, reversed premarket gains to trade 0.6% lower after open. Shares of Intuit dropped 4% ⁠after ​the TurboTax maker forecast annual revenue below Wall Street expectations.

Other software stocks also came under pressure, with ServiceNow and Atlassian falling about 2% each. J.M. Smucker gained 4% after the Folgers coffee maker forecast a smaller-than-expected decline in annual sales.

Meanwhile, a report said that Tehran and Oman have reached agreements on their share of the Strait of Hormuz and its revenues, citing ⁠Iran's Revolutionary Guards spokesperson. Worries over higher-for-longer oil prices, rising government debt and inflation expectations had pushed Treasury yields to multi-year highs last week, although they retreated after the Treasury Department announced ⁠support measures.

Federal Reserve Chair Kevin Warsh's speech ⁠at the Jackson Hole symposium on Friday will be closely watched as U.S. equities approach the historically weaker month of September. Advancing issues outnumbered decliners by a 1.17-to-1 ratio on the NYSE and by a 1.2-to-1 ratio on the Nasdaq.

The S&P 500 posted 7 new 52-week highs ‌and 2 new lows ‌while the Nasdaq Composite recorded 32 new highs and 32 new lows.