Dow Jones Closes at Record High as Investors Celebrate Subdued Inflation Report

The Dow Jones Industrial Average closed at a record high, driven by investor optimism following a subdued inflation report. While the Nasdaq and S&P 500 edged slightly lower, all three indexes posted their third consecutive week of gains. The market anticipates further Fed interest rate cuts.

The blue-chip Dow Jones Industrial Average closed at a record high on Friday as investors welcomed a subdued inflation report that also lifted small-cap stocks expected to benefit from more interest rate cuts by the Federal Reserve. The technology-heavy Nasdaq slipped and the S&P 500 edged slightly lower, but both indexes remained close to recent record highs. All three Wall Street indexes logged their third consecutive week of gains.

'The market at this point is pretty much pricing in a soft landing, and pricing in that we have defeated inflation, and that the Fed will be able to lower rates without causing a bunch of harm to the economy,' said Liz Young Thomas, head of investment strategy at SoFi in New York. The Commerce Department reported a moderate rise in consumer spending, while inflation pressures continued to ease. Separately, the University of Michigan's final September reading on consumer sentiment came in at 70.1, surpassing economists' expectations of 69.3, according to a Reuters poll.

According to preliminary data, the S&P 500 lost 7.64 points, or 0.13%, to end at 5,737.68 points, while the Nasdaq Composite lost 73.41 points, or 0.40%, to 18,116.88. The Dow Jones Industrial Average rose 130.51 points, or 0.31%, to 42,305.62. The Russell 2000 index, which tracks small caps that fare better in a low-rate environment, climbed to a one-week high.

Shares of Nvidia slipped, weighing on the technology-heavy Nasdaq. Investors now slightly favor a 50-basis-point cut at the Fed's next meeting with a 52.1% chance, up from a coin toss before the data, as per the CME Group's FedWatch Tool. Cooling price pressures prompted the Fed to cut rates by 50 bps last week. Focus will now shift to a slew of labor market reports due next week. Among individual stocks, Bristol-Myers Squibb surged after the U.S. FDA approved its schizophrenia drug. Costco Wholesale dropped after posting downbeat fourth-quarter revenue. U.S.-listed shares of Chinese firms, including Alibaba, PDD Holdings, and NetEase, gained after China's central bank lowered interest rates and injected liquidity into the banking system. The optimism extended to miners, with Arcadium gaining, and U.S.-listed shares of BHP also advancing.

(Reporting by Echo Wang in New York; Additional Reporting by Johann M Cherian and Purvi Agarwal in Bengaluru; Editing by Anil D'Silva, Maju Samuel, and David Gregorio)

(With inputs from agencies.)