The S&P 500 ended lower on Friday as investors analyzed the implications of a U.S. inflation report for the Federal Reserve’s interest rate policy. The report showed that the personal consumption expenditures (PCE) price index had fallen below 4% for the first time in over two years. While stocks initially rose in response to the report, they later faded. This decline comes at the end of a weak third quarter for stocks, with the S&P 500 and Nasdaq posting their largest monthly percentage drops of the year and all three major indexes experiencing their first quarterly declines in 2023.

The decline in stocks and the lower-than-expected inflation data reflect investors’ concerns about the U.S. Federal Reserve’s interest rate policy. Last week, the Fed issued a hawkish long-term outlook for rates, causing benchmark Treasury yields to reach 16-year highs. This has rattled stocks and led investors to consider other alternatives. Additionally, investors were watching Washington as hardline Republicans in the U.S. House of Representatives rejected a bill to temporarily fund the government, increasing the likelihood of a partial government shutdown.

In company news, Nike shares jumped 6.7% after the sportswear giant beat Wall Street estimates for first-quarter profit. However, this positive news was overshadowed by the overall decline in the stock market. The energy and financial sectors were particularly affected, with energy declining about 2% and financials dropping 0.9%. For the quarter, the S&P 500 fell about 3.6%, the Dow lost 2.6%, and the Nasdaq shed 4.1%. In September alone, the S&P 500 dropped 4.9%, the Dow fell 3.5%, and the Nasdaq declined 5.8%.

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