Wall Street ends mixed while inflation data keeps Fed rate-cut hopes intact

By Sinéad Carew and Purvi Agarwal

(Reuters) -The Dow and the S&P 500 ended slightly higher on Wednesday while the Nasdaq lost ground after October data showed consumer prices rising in line with expectations, adding support to bets that the U.S. Federal Reserve will cut interest rates in December.

The consumer price index (CPI) rose 0.2% in October for the fourth straight month and advanced 2.6% on an annual basis, the Labor Department's Bureau of Labor Statistics said. Excluding the volatile food and energy components, the CPI increased 0.3% in October, meeting economists' forecasts.

After the report, traders' bets reflected a more than 82% probability for a 25 basis-point interest rate cut at the Fed's December meeting, up from 58.7% on Monday, according to CME group's FedWatch tool.

While some Fed officials sounded more cautious on Wednesday, Minneapolis Fed President Neel Kashkari told Bloomberg TV that he was confident inflation was headed down, noting that the CPI data "confirms" that downward path.

"There's some relief inflation didn't come in ahead of expectations. That was a concern coming into today's CPI report," said Angelo Kourkafas, senior investment strategist at Edward Jones. "The fact we got a right-in-line number helped alleviate some of those fears. Nothing we saw today from today's data argues against a December rate cut."

Outperformance in the consumer discretionary sector index, up more than 1% on the day, was likely due to bets on rate cuts, according to Kourkafas.

Still, Dallas Federal Reserve President Lorie Logan said the U.S. central bank should proceed cautiously on further interest rate cuts to keep from inadvertently re-igniting inflation.

The Dow Jones Industrial Average rose 47.21 points, or 0.11%, to 43,958.19, the S&P 500 gained 1.39 points, or 0.02%, to 5,985.38 and the Nasdaq Composite lost 50.66 points, or 0.26%, to 19,230.74.

Also implying December rate cut bets, U.S. Treasury 2-year yields fell sharply after the inflation report.

However, the benchmark 10-year yield regained ground after the data and rose as high as 4.46% as investors focused on longer-term expectations that President-elect Donald Trump's policies could exacerbate inflation.

Still, investors are expecting a pro-business stance and possible tax cuts from the next administration.

Wednesday's projections that the Republican Party had won a majority in the House of Representatives suggested that it could be easier for Trump to push through his policies, according to Sahak Manuelian, managing director and head of equity trading at Wedbush Securities.

While Venu Krishna, head of U.S. equity strategy and global equity-linked strategies at Barclays, sees upside momentum for risk assets, he said the market is contending with rates, inflation and valuations that "are bigger headwinds now than they were in 2016, the last time Trump became president.”

In individual shares, Spirit Airlines' shares plunged 59% on Wednesday after a report the U.S. carrier was preparing to file for bankruptcy protection, while the company said it was talking with creditors.

Shares of Rivian soared 13.7% after Volkswagen on Tuesday raised its investment in the EV maker.

Declining issues outnumbered advancers by a 1.41-to-1 ratio on the NYSE where there were 371 new highs and 113 new lows.

On the Nasdaq, 1,459 stocks rose and 2,839 fell as declining issues outnumbered advancers by a 1.95-to-1 ratio. The S&P 500 posted 58 new 52-week highs and 15 new lows while the Nasdaq Composite recorded 201 new highs and 165 new lows.

On U.S. exchanges 16.49 billion shares changed hands compared with the 13.46 billion average for the last 20 sessions.

(Reporting by Sinéad Carew in New York, Lisa Mattackal and Purvi Agarwal in Bengaluru; Editing by Shounak Dasgupta and Matthew Lewis)