The Dow Jones Industrial Average ended the session down 450 points, erasing a 600-point intraday gain. It had opened higher on the back of August inflation data, but the rally stalled hard. The S&P 500 shed 0.25%, while the Nasdaq managed a 0.2% gain, though it cooled down by 250 points from its intraday peak. The reversal was stark: a day that started with optimism on disinflation ended with a risk-off shakeout.
The inflation data itself was a mixed bag. August Personal Consumption Expenditures (PCE) rose 0.3% month-on-month, in line with forecasts. The year-on-year figure came in at 3.4%, softer than the 3.7% projected by analysts. Core PCE, which strips out volatile food and energy prices, ticked up 3.0% YoY, beating the 3.3% expectation. This softer print knocked the probability of a Fed rate hike in October down from 70% to 38%, following earlier comments from New York Fed President John Williams who said there was no rush to tighten policy.
But the bond market told a different story. The 30-year US Treasury yield hit a fresh high of 5.63%, with the 10-year yield climbing toward 5.3%. The 2-year yield, most sensitive to Fed moves, dipped to 4.82% post-data but quickly recovered to 4.9%. Elevated yields, driven by resilient economic data and heavy government debt issuance, put a ceiling on equity valuations. The US Treasury announced a $6 billion buyback of 10 and 20-year notes for Thursday, a move aimed at managing the supply glut.
Economic fundamentals remained stubbornly strong. ADP Private Payrolls showed the private sector added 90,000 jobs in September, beating the 75,000 estimate. The Q2 GDP figure was revised upward to 2.2% in the third estimate, up from 1.5% previously. Consumer spending also accelerated at the fastest pace in a year. Minneapolis Fed President Neel Kashkari noted that inflation is "still too high" and that the PCE data does little to change his stance on keeping policy restrictive.
In individual equities, Micron Technology reported Q4 fiscal 2026 results after the close. Both earnings and guidance beat expectations, though the company warned of margin compression in the current quarter. Shares, which are up 540% in the last 12 months, wavered in after-hours trading. Ahead, traders are focused on Friday's September jobs report, along with weekly jobless claims and manufacturing PMI data due today.