Stock market today: Dow, S&P 500, Nasdaq fall from records after PCE inflation data

US stocks retreated from record highs on Friday, led by the tech-heavy Nasdaq, as the July core Personal Consumption Expenditures (PCE) index rose 2.9% annually, exceeding the Fed's 2% target though in line with estimates. Despite this firming inflation, markets continue to price in a high probability of a September Fed rate cut. The chip sector, notably Nvidia, faced significant declines due to Dell's disappointing Q3 outlook and Alibaba's new AI chip, signaling sector-specific pressures, yet major indexes remain poised for multi-month winning streaks.

Analysis

U.S. equity markets retreated from record highs as the July core Personal Consumption Expenditures (PCE) index, a key inflation gauge for the Federal Reserve, rose 0.3% month-over-month and 2.9% annually. While these figures met economist expectations, the annual rate remains significantly above the Fed's 2% target and marks the largest increase since February, contributing to a decline in consumer sentiment to a three-month low. Despite this firming inflation, markets are pricing in an 87% probability of a rate cut in September, a sentiment reinforced by Fed Governor Waller's supportive comments. The technology sector led the downturn, with the Nasdaq falling over 1%, driven by significant pressure on semiconductor stocks. Nvidia (NVDA) dropped over 3% following a weak Q3 earnings outlook from key customer Dell (DELL) and news of Alibaba (BABA) developing a competing AI chip for the Chinese market. This negative sentiment rippled through the sector, with Advanced Micro Devices (AMD), Broadcom (AVGO), and Marvell Technology (MRVL) also seeing sharp declines. Contrasting with the daily pullback, major indices including the Nasdaq, S&P 500, and Russell 2000 are poised to close out their fourth or fifth consecutive month of gains, indicating strong underlying market momentum. This is further complicated by company-specific headwinds, such as Caterpillar (CAT) lowering its outlook due to an expected tariff hit of up to $1.8 billion.

Key Decisions for Investors

• Investors should exercise caution with the semiconductor sector, as negative catalysts including Dell's weak guidance and new competitive threats from Alibaba create significant headwinds for highly-valued stocks like Nvidia, AMD, and Marvell.
• Monitor the divergence between the market's bullish momentum, fueled by aggressive rate cut expectations, and the negative earnings warnings from key industrial and tech companies, which may signal a need for more selective stock-picking over broad index exposure.
• Consider positions in safe-haven assets such as gold, which is showing strength, to hedge against potential market volatility arising from persistent inflation, geopolitical risks, and uncertainty surrounding the Federal Reserve's policy path.
• Despite broad market jitters, idiosyncratic opportunities remain, as demonstrated by Celsius Holdings' 6.7% stock pop on PepsiCo's increased stake, suggesting a focus on companies with strong strategic partnerships or M&A potential can yield returns.