By Saeed Azhar, Purvi Agarwal and Niket Nishant
NEW YORK, Aug 26 (Reuters) - Wall Street's main indexes closed nearly flat to slightly lower on Wednesday after a U.S. inflation reading came in hotter than expected, while many 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. 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. Investors will focus sharply 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's next scheduled meeting is 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.
"There is no crisis, it is more about expectations or guidance we are going to get from the Fed and what the Treasury is trying to do. That blends to some uncertainty and basically increases the risk premium," said Greg Tuorto, head of U.S. small and midcap investing at Goldman Sachs Asset Management.
"But on the other side, on the positive side, the underlying economic environment is really good. Earnings for the companies that we own and some of the larger cap companies are standout," he said.
According to preliminary data, the S&P 500 lost 0.99 points, or 0.01%, to end at 7,676.29 points, while the Nasdaq Composite lost 15.12 points, or 0.06%, to 26,136.18. The Dow Jones Industrial Average fell 113.52 points, or 0.21%, to 53,463.88.
EYES ON NVIDIA FOR VERDICT ON AI
Nvidia shares were down ahead of its closely watched quarterly update. Anything less than a stellar report from the chip giant could rekindle doubts about the sustainability of the AI boom.
Shares in cybersecurity firm CrowdStrike were up ahead of second-quarter results, due out after closing bell.
On the S&P 500, healthcare stocks were the biggest laggards.
Moderna fell sharply, after strong gains on Tuesday although the stock remained well above the levels before the company disclosed a late-stage cancer vaccine trial data last week, alongside Merck.
Meta rose 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. Apple gained.
Shares of Intuit fell after the TurboTax maker forecast annual revenue below Wall Street expectations.
J.M. Smucker gained 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 stubbornly high 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.
(Reporting by Purvi Agarwal and Niket Nishant in Bengaluru and Saeed Azhar in New York; Editing by Shilpi Majumdar and David Gregorio)
