Nasdaq 100: Powell’s Fed Signals Hold Risk for US Stocks as PCE Report Looms

Wall Street Slips as Powell Flags High Valuations, Traders Focus on Inflation Data

U.S. stocks are edging lower mid-session Wednesday, paring recent gains after Federal Reserve Chair Jerome Powell warned that asset valuations appear “fairly high.” Traders are now reassessing the likelihood of further rate cuts ahead of key inflation data later this week.

The S&P 500 and Nasdaq, both coming off three straight record closes, have lost steam as caution resurfaces. Powell’s remarks introduced new concern that the Fed may hold off on further easing unless there is clearer evidence of slowing inflation or a softening labor market.

Last week’s rate cut helped fuel the September rally, but momentum is stalling. Powell’s focus on asset pricing suggests the central bank is watching more than just employment and inflation prints. For traders, that raises the stakes heading into Friday’s core PCE report—one of the Fed’s preferred inflation gauges.

What Did Powell’s Comments Signal for Fed Policy and Equities?

Powell’s acknowledgment of inflated asset prices raised concerns that the central bank may hesitate to ease policy further without clear economic justification. The market is now increasingly sensitive to incoming data, with many investors looking toward the Fed’s preferred inflation gauge—core PCE—due later this week.

Despite policy uncertainty, some sectors outperformed. Energy stocks surged, with the S&P 500 energy sector gaining 2% as crude prices climbed. Consumer discretionary also saw modest gains, up 0.5%. However, tech weighed on the broader market. The S&P 500 tech sector dropped 0.7%, led by more than 1% losses in Apple and Nvidia.

How Did Economic Data and Housing Surprise Traders?

Surprisingly strong housing data added another twist. Sales of new single-family homes jumped 20.5% in August, raising questions about the urgency of further rate cuts. Analysts warned that signs of resilience in the housing market could complicate the Fed’s calculus, limiting policy flexibility.

Which Stocks Made Headlines and Why?

Alibaba led Chinese ADRs higher with an 8.9% rally after announcing a partnership with Nvidia. Lithium Americas nearly doubled after news surfaced that the U.S. government was eyeing a stake and a $2.26 billion loan for its Thacker Pass lithium project. General Motors gained 1.4% following an upgrade from UBS and ties to the lithium project.

In contrast, Micron fell 4% after reporting quarterly results. Oracle dropped 3.5% amid reports of a $15 billion bond sale plan. Freeport-McMoRan plunged 11.7% after issuing weak Q3 sales guidance for copper and gold.

What’s the Market Watching Next?

Traders are closely tracking core PCE data, which will play a crucial role in shaping expectations for the Fed’s next move. With Powell signaling caution on valuations and data delivering mixed signals, equities may see more choppiness ahead. Sector rotation and stock-specific moves will likely dominate until there’s clarity on inflation and interest rate outlooks.

More Information in our Economic Calendar.