Market Jitters Ahead of CPI Report and Presidential Debate

U.S. stocks showed mixed performance, with crude prices dipping amid concerns over weakening global demand. Market focus shifted to the upcoming CPI report and the Trump-Harris presidential debate. The Federal Reserve's outlook on interest rates and economic policy impacts created market unease, affecting stocks, bonds, and commodities alike.

U.S. stocks were mixed on Tuesday and crude prices dipped as concerns over softening global demand held risk appetite in check a day ahead of inflation data. Market participants were girding for the Labor Department's consumer price index (CPI) report, and the first debate between Vice President Kamala Harris and former President Donald Trump, who are locked in a tight race for the White House.

Data from China showing a spike in exports appeared to be in anticipation of tighter tariffs from trading partners, including the incoming U.S. administration. Megacap tech and tech-related stocks helped boost the Nasdaq into positive territory, while the S&P 500 eked out more modest gains and the blue-chip Dow languished in the red.

"It really feels like today is kind of a calm before the storm," said Ryan Detrick, chief market strategist at Carson Group in Omaha. "We obviously have the first presidential debate between Trump and Harris later this evening, but then we have the CPI inflation data tomorrow and investors are kind of on strike right now with no major buying or selling." Shares of big banks were under pressure after Federal Reserve Vice Chair for Supervision Michael Barr unveiled sweeping bank capital plan revisions.

The sector was further rattled after JPMorgan Chase issued an interest income warning as interest rates are expected to ease. The warning from JPMorgan Chase "is a reminder that there still are some cracks in the economy as we head into the end of the year," Detrick added.

Wednesday's CPI report is expected to show inflation drifting closer to the Federal Reserve's 2% target, reflecting Fed Chair Jerome Powell's belief that price growth is under control, and softness in the labor market suggests the time has come for a policy rate cut. Financial markets are baking in a 71% likelihood that the central bank will cut its Fed funds target rate by 25 basis points at the conclusion of its monetary policy meeting next week, with a 31% chance of a supersized 50 basis point rate cut, according to CME's FedWatch tool.

"Investors are firmly focused on what the Fed is going to do, and on economic reports," said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. "So far, the data indicates that the most likely scenario is a soft landing or very mild recession." The Dow Jones Industrial Average fell 133.12 points, or 0.33%, to 40,696.47 the S&P 500 gained 17.2 points, or 0.31%, to 5,488.25 and the Nasdaq Composite added 119.85 points, or 0.71%, to 17,004.46.

European stocks turned negative, weighed by bank and energy stocks as investors took a cautionary stance ahead of U.S. inflation data and an anticipated rate cut from the European Central Bank later in the week. The pan-European STOXX 600 index lost 0.54% and MSCI's gauge of stocks across the globe gained 0.07%.

Emerging market stocks lost 0.07%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.08% higher, while Japan's Nikkei lost 0.16%. U.S. Treasury yields dipped ahead of the debate and Wednesday's CPI report.

Benchmark 10-year notes last rose 16/32 in price to yield 3.6404%, down from 3.699% late on Monday. The 30-year bond last rose 27/32 in price to yield 3.9518%, down from 3.999% late on Monday.

The dollar inched higher against a basket of world currencies. The dollar index rose 0.06%, with the euro down 0.07% to $1.1026.

The Japanese yen strengthened 0.62% versus the greenback at 142.32 per dollar, while Sterling was last trading at $1.3082, up 0.08% on the day. Oil prices slid and Brent dipped below $70 per barrel for the first time since December 2021 as a lower demand forecast from OPEC+ offset potential U.S. supply concerns due to Tropical Storm Francine.

U.S. crude tumbled 4.31% to settle at $65.75 per barrel, while Brent settled at $69.19 per barrel, off 3.69% on the day. Gold firmed above the $2,500 level as investors positioned themselves ahead of the CPI report.

Spot gold added 0.4% to $2,515.74 an ounce.

(With inputs from agencies.)