Stocks Retreat as Hawkish Fed Commentary and Inflation Data Weigh on Markets

The S&P 500 closed lower for the fifth consecutive session on Thursday, slipping 0.4%, while the Nasdaq Composite lost 0.3%, marking declines in five of the past six trading days. The Dow Jones Industrial Average also fell 0.3%, despite showing relative resilience earlier in the week. This time, the weakness was more broad-based, with losses cutting across most sectors.

Markets came under pressure after hawkish remarks from Federal Reserve officials dampened rate-cut expectations. Kansas City Fed President Schmid, a voting FOMC member, told CNBC that he is in no rush to cut rates, pointing to key inflation data due before September’s meeting. Cleveland Fed President Beth Hammack echoed that sentiment in a Yahoo! Finance interview, arguing that inflation remains too high to justify imminent easing.

Economic data added to the unease. The Philadelphia Fed’s Manufacturing Index fell sharply to -0.3 in August, well below expectations for a positive reading, while price components for both inputs and outputs accelerated, underscoring persistent inflationary pressures. Initial jobless claims also ticked up to 235,000, with continuing claims rising to nearly two million — developments that stoked concerns about stagflation.

Despite some encouraging PMI figures that pointed to expanding activity in both manufacturing and services, sharp increases in input costs, largely tied to tariffs, overshadowed the upbeat signals. As a result, markets recalibrated their rate-cut outlook. The CME FedWatch tool now shows just a 73.6% probability of a September cut, down notably from over 92% a week ago.

Sector performance reflected the broad retreat. Consumer staples (-1.2%) led the day’s losses, weighed down by Walmart’s 4.5% drop after the retailer posted its first earnings miss since 2022, citing higher costs tied to replenishing inventory. Weakness across mega-cap stocks added pressure, dragging the consumer discretionary (-0.7%), technology (-0.4%), and communication services (-0.4%) sectors lower.

Not all corners of the market were under strain. Energy stocks (+0.7%) led the day, supported by a 1.3% rise in crude oil prices to $63.50 a barrel, while the materials sector added 0.3%. Small caps also managed to outperform, with the Russell 2000 gaining 0.2%, though the S&P MidCap 400 slipped 0.2%.

All eyes now turn to Fed Chair Jerome Powell’s upcoming speech at Jackson Hole, where investors hope for clearer guidance on policy. For now, however, the combination of disappointing data, sticky inflation, and fading rate-cut optimism has kept market sentiment cautious.

After several strong sessions, our FTInvest 11 portfolio paused its momentum today, closing lower by 0.19% at 837.93. The day began with a fairly neutral tone, and while the index managed to hover near its recent levels for much of the session, late weakness pushed it modestly into negative territory.

Importantly, the decline was measured, suggesting that investors are consolidating gains rather than exiting positions outright. Even with today’s retreat, the index remains firmly anchored above 830 and well within striking distance of the record highs set earlier this month.

The mild pullback also comes after a string of strong performances that left the portfolio running ahead of broader benchmarks in recent weeks. Today’s decline was largely in line with the overall market’s hesitant tone, as investors await more clarity on interest rates and economic signals in the coming days.

For now, FTinvest 11 continues to trade from a position of strength, with its longer-term upward trend intact despite today’s small dip.