(Reuters) - The S&P 500 fell on Friday as investors digested implications of a U.S. inflation report for the Federal Reserve’s interest rate policy and adjusted their portfolios on the last day of a weak third quarter for stocks.
The benchmark S&P 500 was also on track to post its biggest monthly percentage drop of the year.
Data showed the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 3.9% on an annual basis for August, the first time in over two years that it had fallen below 4%. The Fed tracks the PCE price indexes for its 2% inflation target.
The data revealed a “better than expected but still elevated inflation picture,” said Eric Freedman, chief investment officer at U.S. Bank Asset Management.
Meanwhile, Freedman said, “we are at quarter end, and with quarter end comes all sorts of activities across both the stock and bond markets.”
The Dow Jones Industrial Average fell 172.50 points, or 0.51%, to 33,493.84, the S&P 500 lost 14.22 points, or 0.33%, to 4,285.48 and the Nasdaq Composite gained 11.56 points, or 0.08%, to 13,212.83.
Among S&P 500 sectors, energy fell the most, dropping 1.9%, while financials declined 0.7%. Energy remained by far the biggest-gaining sector for the third-quarter.
“Energy and financials have been up on a relative basis and they are feeling some rebalancing effect today,” Freedman said.
All the three major indexes were set for their first quarterly declines in 2023.
The highly anticipated PCE data followed last week’s hawkish longterm outlook for rates from the Fed, which has rattled stocks as benchmark Treasury yields climbed to 16-year highs.
Investors were also watching Washington. Hardline Republicans in the U.S. House of Representatives rejected a bill proposed by their leader to temporarily fund the government, making it all but certain that federal agencies will partially shut down beginning Sunday.
Traders were also wary that a $16 billion JP Morgan fund, expected to reset its options positions on Friday, would be another source of market volatility.
In company news, Nike shares jumped 7% after the world’s largest sportswear maker topped Wall Street estimates for first-quarter profit.
Advancing issues outnumbered decliners by a 1.1-to-1 ratio on the NYSE. There were 44 new highs and 91 new lows on the NYSE.
On the Nasdaq, advancing issues outnumbered decliners by a 1.1-to-1 ratio. The Nasdaq recorded 39 new highs and 135 new lows.
Reporting by Lewis Krauskopf in New York, Shashwat Chauhan and Shristi Achar A in Bengaluru; Editing by Arun Koyyur, Maju Samuel and David Gregorio