US stocks moved higher on Wednesday, September 30, as cooler-than-expected inflation data lifted investor sentiment. The gains came on the final trading day of September, with investors reacting to fresh US economic data showing that inflation slowed in August.
The Dow Jones Industrial Average rose 84 points, or nearly 0.2%. The S&P 500 gained 0.6%, while the Nasdaq Composite climbed about 1%, according to CNBC. The main trigger for the market move was the latest Personal Consumption Expenditures (PCE) price index report. PCE is closely watched by the Federal Reserve as a measure of inflation.
PCE inflation falls in August
Headline PCE inflation rose 3.4% year over year in August, down from 3.7% in July. Economists surveyed by Dow Jones had expected inflation to remain at 3.7%, making the latest reading cooler than expected, according to the data cited by CNBC.
Core PCE, which removes food and energy prices, also came in below expectations. Core PCE rose 3% year over year in August, compared with 3.3% in July. Economists had expected core PCE to rise 3.3%. The lower-than-expected reading gave investors a more positive signal on inflation.
Treasury yields stay high
Treasury yields moved lower after the inflation report was released, helping support stocks. Lower yields can make stocks more attractive to investors because they reduce the relative appeal of bonds. However, Treasury yields remained close to very high levels. The 10-year Treasury yield was up about 1 basis point at 5.27%, staying close to the nearly two-decade high reached earlier this week, according to CNBC.
{{/usCountry}}Treasury yields moved lower after the inflation report was released, helping support stocks. Lower yields can make stocks more attractive to investors because they reduce the relative appeal of bonds. However, Treasury yields remained close to very high levels. The 10-year Treasury yield was up about 1 basis point at 5.27%, staying close to the nearly two-decade high reached earlier this week, according to CNBC.
{{/usCountry}}The 30-year Treasury yield also remained elevated. It was last up 3 basis points at 5.622%. Investors are now turning their attention to the US jobs report due Friday. Economists expect nonfarm payrolls to have increased by 84,000 in September.
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US jobs report in focus
That expected September job growth would be around half of the jobs added in August. The employment data could give investors another important signal about the strength of the US economy and the Federal Reserve's next move.
Fed rate hike odds fall
Traders also reduced their expectations for a Fed rate hike in October after the inflation report. CME Group's FedWatch tool showed a 35% chance of a quarter-point rate hike next month, down from 51% a day earlier. Markets are still pricing in another Fed rate hike in December. This means the cooler inflation data has reduced, but not removed, expectations for another rate increase later this year.
ADP jobs data stays strong
Janus Henderson Investors' Adam Hetts said the inflation data was better than expected but may not be enough to change expectations for another rate hike this year. He pointed to strong labour and GDP data as factors that could continue supporting the case for another hike. A separate private-sector jobs report showed that the US labour market remained stronger than expected. ADP said companies added 90,000 private-sector jobs in September.
The ADP jobs number was well above the 68,000 increase economists had expected. It was also much higher than the downwardly revised 36,000 jobs added in August, according to CNBC. The stronger jobs data partly offset the positive inflation news. Investors are therefore watching both inflation and employment data closely as they assess what the Fed could do with interest rates.
Chip stocks may get a boost
The major indexes were already higher at the market open. The Dow was up 39 points, or 0.1%, while the S&P 500 gained 0.4% and the Nasdaq rose 0.6%. Chip stocks could also get a seasonal boost in the coming months, according to Bank of America. The bank said the fourth and first fiscal quarters have historically been the strongest seasonal periods for semiconductor stocks.
Bank of America's Vivek Arya said chip stocks delivered median outperformance of 300 to 500 basis points versus the S&P 500 during those periods from 2010 to 2025. The comments were made in a Tuesday note to clients. Bank of America's top chip picks for the fourth quarter include Nvidia, Intel, Marvell, Micron and Lam Research. Arya also highlighted AMD, Applied Materials, Analog Devices and ON Semiconductor.
Also read: PCE inflation rises 0.3%: What latest US inflation data means for Fed's next rate hike
Mattel stock falls
Individual stocks were also moving on company-specific news. Mattel shares fell more than 2% after the toy maker announced a new CEO.
Mattel named Roger Lynch as its new CEO and chairman. Lynch has been a member of Mattel's board since 2018 and is expected to take over the company by November 2, according to a company statement. Mattel shares touched a new 52-week low of $12.53 during Wednesday's session.
Boeing, Moderna shares move
Boeing shares gained about 2% before the broader market opened. The move came after the company secured a US defense contract to develop the Navy's next-generation fighter jet. The Boeing contract is worth $20 billion. Boeing will develop the Sixth-Generation F/A-XX Strike Fighter, according to the information cited by CNBC.
Northrop Grumman, which was also reportedly competing for the contract, saw its shares fall 3.5%. Moderna shares fell more than 6% after Citi downgraded the stock to sell. Citi analysts said Moderna's current valuation could not be justified. Citi's price target for Moderna was 60% below the stock's closing price on Tuesday. The downgrade added further pressure to the stock during Wednesday's trading session.
Overall, the main reason US stocks were higher was the cooler inflation reading. August headline and core PCE both came in below expectations, while Treasury yields reacted to the data. However, stronger private-sector hiring and still-high Treasury yields kept investors focused on Friday's jobs report and the Fed's next interest-rate decision.