By Purvi Agarwal
Aug 26 (Reuters) - Wall Street's main indexes were subdued on Wednesday as investors stuck to the sidelines ahead of AI bellwether Nvidia's quarterly earnings, while hotter-than-expected inflation bolstered bets on a September interest rate hike.
A Commerce Department report showed that annual U.S. inflation increased 3.7% in the 12 months through July, just above the 3.6% expected by analysts, while the economy grew 1.5% in the second quarter, a revised estimate showed.
The case for
a Federal Reserve interest rate hike strengthened slightly after the data, with Fed funds futures showing about a 44% chance of a September rate increase, up from roughly 36% just before the data release.
"We're clearly still in a period where inflation is sticky and it's temporarily putting upward pressure on interest rates - an important factor in keeping this bull market for stocks going," said Jeff Buchbinder, chief equity strategist at LPL Financial.
On the S&P 500, information technology and industrials were the biggest boosts, rising 0.3% and 1% respectively.
Microsoft and Apple led gains among megacaps, each rising 0.5%.
AI chip giant Nvidia lost 0.4% ahead of its closely watched quarterly report. Anything less than a stellar report could rekindle doubts about the sustainability of the AI boom and set the tone for tech stocks for the rest of the week.
"This market is a tug of war between earnings and interest rates and, up to this point, earnings have been winning that battle. As long as the fundamentals remain strong, (the) market is going to hold up okay," said Buchbinder.
Bumper results could also deepen the divide between software stocks that have taken a beating this year, and semiconductors, which have capitalized heavily on the AI euphoria.
At 09:53 a.m. ET, the Dow Jones Industrial Average fell 21.54 points, or 0.04%, to 53,555.86, the S&P 500 gained 2.24 points, or 0.03%, to 7,679.52 and the Nasdaq Composite lost 13.85 points, or 0.06%, to 26,137.16.
Meanwhile, financials on the blue-chip Dow lost some ground. Declines in Alphabet and some healthcare stocks kept the S&P 500 and Nasdaq rangebound.
Among stocks, Meta agreed to pay a maximum $16.68 billion and make major changes to Facebook and Instagram to resolve claims by U.S. states of harm to children. Its shares, however, reversed premarket gains to trade 0.6% lower after open.
Shares of Intuit dropped 4% after the TurboTax maker forecast annual revenue below Wall Street expectations.
Other software stocks also came under pressure, with ServiceNow and Atlassian falling about 2% each.
J.M. Smucker gained 4% after the Folgers coffee maker forecast a smaller-than-expected decline in annual sales.
Meanwhile, a report said that Tehran and Oman have reached agreements on their share of the Strait of Hormuz and its revenues, citing Iran's Revolutionary Guards spokesperson.
Worries over higher-for-longer oil prices, rising government debt and inflation expectations had pushed Treasury yields to multi-year highs last week, although they retreated after the Treasury Department announced support measures.
Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole symposium on Friday will be closely watched as U.S. equities approach the historically weaker month of September.
Advancing issues outnumbered decliners by a 1.17-to-1 ratio on the NYSE and by a 1.2-to-1 ratio on the Nasdaq.
The S&P 500 posted 7 new 52-week highs and 2 new lows while the Nasdaq Composite recorded 32 new highs and 32 new lows.
(Reporting by Purvi Agarwal and Niket Nishant in Bengaluru; Editing by Shilpi Majumdar)
