Stock Market Today: Stocks Down on Wall Street After Data Shows Inflation Continues to Fall

Wall Street stocks gave up early gains and edged lower in afternoon trading Friday, following a closely watched report showing inflation continues to moderate.

Investors are hoping that slowing inflation will prompt the Federal Reserve to start cutting interest rates, which remain at their highest level in more than 20 years.

The S&P 500 index fell 0.3%, hovering around its all-time high. The benchmark remains within striking distance of posting a fourth straight weekly gain. The Nasdaq Composite fell 0.3%, hovering around its all-time high.

The Dow Jones Industrial Average was down 152 points, or 0.4%, as of 3:15 p.m. Eastern Time.

Consumer prices rose 2.6% in May from a year ago, according to the latest index of personal consumption expenditures, or PCE. This reflects continued easing from the 2.7% figure recorded in April and is significantly lower than the peak of 7.1% recorded two years ago.

This is a step in the right direction and is what the Fed needs to make the decision to cut rates, said Quincy Krosby, chief global strategist at LPL Financial.

PCE is the Fed's preferred inflation measure and the latest data is encouraging for economists and investors hoping for rate cuts to help ease pressure on the market and borrowers. Wall Street is betting that the Fed will start cutting interest rates at its September meeting.

Treasury yields were mixed in the bond market after initially losing ground following the latest signal of slowing inflation. The yield on the 10-year Treasury, which influences interest rates on mortgages and other consumer loans, rose to 4.35% from 4.30% just before the PCE data was released. The two-year Treasury yield, which more closely tracks expectations for the Fed's actions, was flat at 4.72% from the data release.

The Fed raised interest rates to their highest level in more than two decades in an effort to bring inflation back to its 2% target. Other measures of inflation, including the popular Consumer Price Index, have also confirmed that price pressure has eased.

Consumers continue to feel the pressure of inflation, despite a significant decline from its peak, and recent data show that spending is weakening and weighing on economic growth. The Fed’s goal was to slow economic growth enough to cool inflation, but not so much that the economy slides into recession.

This combination of lower inflation and consumers being much more cautious in their spending habits has the market pricing in the possibility of a rate cut in September, Krosby said.

The strength of the jobs market has been another important factor in economic growth, but it has also shown signs of weakening. Wall Street will be informed next week about job openings, unemployment and hiring.

Nike fell 20.7%, the biggest drop among S&P 500 stocks after the athletic footwear and apparel company missed Wall Street revenue targets and cut its sales forecast for the full year. Company executives said they expected a single-digit sales decline in the current fiscal year, citing a challenging environment.

Nike's gloomy outlook has dragged other sportswear brands down with it. Foot Locker fell 3.5%, Skechers lost 1.2% and Under Armor lost 3.1%.

More retailers, particularly those focused on non-essential items, are warning of a slowdown in consumer spending. Consumers barely increased their spending in May compared to April, according to the government's latest retail sales report.

Gains in technology and financial stocks helped limit the decline in the S&P 500. Salesforce rose 2% and JPMorgan Chase rose 1.3%.

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AP Business Writers Yuri Kageyama and Matt Ott contributed to this report.