Stock market today: Dow, S&P 500, Nasdaq slide as Nvidia leads tech losses after PCE inflation, consumer data

US equities retreated from record highs on Friday, led by the Nasdaq, as markets absorbed July's core Personal Consumption Expenditures (PCE) index rising 2.9% year-over-year, above the Fed's 2% target and marking its largest annual increase since February, alongside a three-month low in consumer sentiment. Despite this daily pullback, major indexes concluded August with robust monthly gains, including the S&P 500 and Dow marking their fourth consecutive positive month and the Nasdaq its fifth, while traders continued to price in an 87% probability of a September Fed rate cut.

Analysis

US equity markets experienced a modest pullback from record highs on Friday, primarily driven by a 1.1% decline in the tech-heavy Nasdaq Composite, with bellwether Nvidia (NVDA) falling over 3% post-earnings. The catalyst for the day's retreat was the release of July's core Personal Consumption Expenditures (PCE) index data, which, while matching economist expectations, showed a 0.3% monthly increase and a 2.9% annual rise. This annual growth rate represents the fastest pace since February and keeps inflation firmly above the Federal Reserve's 2% target. Compounding this, consumer sentiment registered a three-month low, with survey respondents anticipating a surge in inflation over the next year. Despite this daily weakness and the sticky inflation print, the broader market narrative remains resilient. Major indices concluded August with significant gains, marking the fourth consecutive positive month for the S&P 500 (+1.4%) and Dow Jones (+2%), and the fifth for the Nasdaq (+1.6%). Notably, traders continue to price in a high probability (87%) of a quarter-point Fed rate cut in September, indicating a market that is largely looking past the current inflation data and focusing on an anticipated monetary easing cycle.

Key Decisions for Investors

• Given the divergence between Friday's tech-led pullback and the strong multi-month rally, investors should monitor whether this is temporary profit-taking in leaders like NVDA or the beginning of a broader market re-evaluation of risk.
• The market's pricing of an 87% chance for a September rate cut, despite core PCE firming to 2.9%, presents a key risk; a hawkish shift in Fed guidance or stronger-than-expected subsequent data could trigger a significant repricing of rate expectations.
• The notable outperformance of the Russell 2000, which jumped 6% in August, compared to the Nasdaq's 1.6% gain, suggests a potential rotation, warranting a review of portfolio exposure to large-cap tech versus small-cap equities.