By Purvi Agarwal and Niket Nishant
Aug 26 (Reuters) - Wall Street's main indexes were subdued on Wednesday after a key inflation reading came in hotter than expected, while investors stuck to the sidelines ahead of AI bellwether Nvidia's earnings later in the day.
A Commerce Department report showed annual U.S. inflation increased 3.7% in the 12 months through July, a touch above expectations, while separate data showed the economy grew 1.5% in the second quarter.
The latest print added another wrinkle
to the Federal Reserve's policy outlook, raising the stakes for upcoming economic data and sharpening the focus on Fed Chair Kevin Warsh's Jackson Hole speech on Friday.
"It wasn't enough to shift the balance for September's meeting, but if subsequent data point in the same direction, the Fed may feel more pressure to move off the sidelines," said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
The central bank is next expected to meet in September, putting the policy decision in focus during what is historically a weak month for equities. Odds of an interest rate hike at that meeting stand at 38.1%, according to the CME FedWatch tool.
EYES ON NVIDIA FOR VERDICT ON AI
Investors will closely watch Nvidia's quarterly update as anything less than a stellar report from the chip giant could rekindle doubts about the sustainability of the AI boom.
"We expect the best when it comes to Nvidia. Because it has had such tremendous growth, it's so hard now to impress investors," said Eva Ados, chief investment strategist at ERShares.
Nvidia was down nearly 1% ahead of its closely watched report.
On the S&P 500, healthcare stocks were the biggest laggards with a 0.9% decline.
Moderna was the biggest decliner on the S&P 500, down 7.4%, although the stock remained well above the levels before the company, alongside Merck, disclosed a late-stage cancer vaccine trial data last week.
Meta rose 1.9% and was leading gains among megacaps after it agreed to pay up to $18 billion and make major changes to Facebook and Instagram to resolve U.S. states' claims of harm to children.
Microsoft and Apple were up 0.7% each.
At 11:41 a.m. ET, the Dow Jones Industrial Average fell 134.41 points, or 0.25%, to 53,442.99. The S&P 500 lost 1.94 points, or 0.03%, to 7,675.34, while the Nasdaq Composite dropped 48.36 points, or 0.18%, to 26,102.94.
Shares of Intuit fell 4.3% after the TurboTax maker forecast annual revenue below Wall Street expectations.
J.M. Smucker gained 2.6% after the Folgers coffee maker forecast a smaller-than-expected decline in annual sales.
Meanwhile, a report, citing Iran's Revolutionary Guards spokesperson, said Tehran and Oman have reached agreements on their share of the Strait of Hormuz and its revenue.
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.
Declining issues outnumbered advancers by a 1.18-to-1 ratio on the NYSE and by a 1.61-to-1 ratio on the Nasdaq.
The S&P 500 posted 10 new 52-week highs and three new lows, while the Nasdaq Composite recorded 50 new highs and 57 new lows.
(Reporting by Purvi Agarwal and Niket Nishant in Bengaluru; Editing by Shilpi Majumdar)
