Wednesday brought a cooler inflation print and a much hotter growth revision, and the bond market sided with growth. The S&P 500 fell 0.3% to 7,651.54 and the Dow lost 0.9%, while the Nasdaq Composite rose 0.2% to 26,861.06. The 10-year Treasury yield climbed three basis points to 5.29% on the Treasury’s par curve, from 5.26% on Tuesday.

The release that moved the tape

The Bureau of Economic Analysis revised second-quarter GDP to a 2.2% annual rate, well above the 1.5% second estimate and the 1.5% forecast. Stronger investment, consumer spending and government outlays drove the change, and real final sales to private domestic purchasers grew 4.6%. A 0.7 point upgrade tells markets the economy entered the summer with more momentum than assumed. That matters because the Federal Reserve raised rates on 16 September and is weighing another move on 27 and 28 October. Faster growth lifts the odds that policy stays tight, and a higher risk-free rate compresses the multiples paid for future earnings.

Inflation helped, but not enough

August core PCE rose 0.2% on the month, below the 0.3% forecast and level with July. The annual core rate held at 3.0%, and headline PCE held at 3.4%. The calendar listed a core annual previous of 3.3% and forecast of 3.4%, which do not match the BEA’s July figure of 3.0%, so the annual comparison here rests on the BEA release and press reports that called it softer than expected. Fed funds futures cut the odds of an October hike to 39.3% from 50.9%, yet yields still rose, which shows the GDP revision outweighed the inflation relief.

What else landed

The MNI Chicago Business Barometer rebounded 11.7 points to 58.8 in September, against a 51.3 forecast and 47.1 in August. Production and new orders led the gain, while employment fell back into contraction and prices paid eased but stayed elevated. Diffusion indices measure breadth, so the jump means far more firms reported improvement, not that output rose by a quarter.

ADP private payrolls added 90,000 in September against a 70,000 forecast, after a downwardly revised 36,000 in August. The prior reading on the calendar was 38,000. A second beat on labour reinforced the growth side of the argument.

EIA data showed crude inventories rising by roughly 0.9 million barrels, against an expected draw of about 0.3 million. WTI settled near $90.42, up about $1.04.

Reading the day

The market ranked the releases clearly. Growth and labour strength dominated and inflation relief was only partial. The Nasdaq still finished the quarter higher, but the Dow and S&P 500 absorbed the pressure from a higher discount rate.

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