S&P 500, Nasdaq advance as soft inflation tempers Fed rate-hike bets

The Nasdaq jumped more than 1 percent on Wednesday, leading gains among Wall Street's main indexes, as a softer-than-anticipated inflation reading buoyed hopes that the Federal Reserve might not hike rates as soon as next month.

A Commerce Department report showed the Personal Consumption Expenditures (PCE) price index stood at 3.4 percent on an annual basis in August against estimates of 3.7 percent, per economists polled by Reuters. Separately, second-quarter GDP data showed that the U.S. economy grew at a solid clip.

"The PCE report today was under a microscope as participants try to get a handle on how aggressive the Fed needs to be with future rate increases," said Steve Wyett, chief investment strategist at BOK Financial.

Traders now see a roughly 38 percent chance of an October hike, compared to a more than 50 percent chance seen one day prior, according to the CME FedWatch Tool.

Barclays analysts also noted that recent methodology changes in calculating PCE by the Bureau of Economic Analysis also contributed to a lower reading.

Most megacap and growth stocks ticked higher, with Amazon.com and Apple up around 2 percent each, while Alphabet advanced 3 percent.

Software stocks were some of the best performers, with Palo Alto Networks up 3.7 percent, Microsoft gaining 1.9 percent and Intuit adding 2.6 percent.

On the other hand, chip stocks weakened, with Advanced Micro Devices and Broadcom falling nearly 1 percent each.

At 11:49 a.m. ET, the Dow Jones Industrial Average fell 29.41 points, or 0.06 percent, to 51,320.51, the S&P 500 gained 44.99 points, or 0.59 percent, to 7,715.83 and the Nasdaq Composite gained 285.41 points, or 1.07 percent, to 27,082.95.

Five of the 11 S&P 500 sectors were trading higher, with information technology and energy leading gains. Real estate and financials were the laggards.

Comments from at least four Fed officials, including Minneapolis Fed President Neel Kashkari, are due later in the day.

Choppy September coming to a close

Despite weakness in September, driven by bond market volatility and elevated oil prices amid the U.S.-Iran conflict, the benchmark S&P 500 and the Nasdaq were on pace for a second straight quarterly advance, if gains hold.

The blue-chip index Dow differed, set for a quarterly fall and on track for its first monthly decline since March.

On Wednesday, the yield on the 10-year Treasury bond held close to its highest level since June 2007. Crude oil prices rose, with the December contract for Brent crude futures moving higher.

Warnings from leaders of the biggest AI companies earlier this month about the potential existential risks from the technology had also rattled the AI trade.

The next test for AI appetite could be memory-chip giant Micron Technology's earnings due after the bell.

Among other movers, Hewlett Packard Enterprise climbed 5.9 percent after the AI server maker raised its long-term revenue growth forecast for its networking business and announced a $1.2 billion deal with Vultr.

Moderna dropped 7.2 percent after brokerage Citigroup downgraded its rating on the biotech company to "sell" from "neutral".

Advancing issues outnumbered decliners by a 1.01-to-1 ratio on the NYSE and by a 1.14-to-1 ratio on the Nasdaq.

The S&P 500 posted 9 new 52-week highs and 18 new lows while the Nasdaq Composite recorded 38 new highs and 136 new lows.