Stock ETFs Volatile as Markets Digest Debate, Inflation Data

Markets digested the debate and latest CPI report.

ETFs were volatile on Wednesday as investors digested a double dose of big news. 

Up first was the highly anticipated debate between Donald Trump and Kamala Harris, which seemed to boost the chances of the current vice president, according to polls and betting markets.

Former president Trump seemed to have a slight edge heading into the debate, according to prediction market Polymarket, but Harris has regained the momentum after a strong performance. The race is now a dead heat that will depend on voters in a half-dozen swing states. 

Harris’ improving chances caused gyrations in the exchange-traded funds investors believe are most exposed to the election. 

The Invesco Invesco Solar ETF (TAN) recently soared 5% on the day, while the Financial Select Sector SPDR Fund (XLF) and the Health Care Select Sector SPDR Fund (XLV) sagged by around 1%.

Meanwhile, the broader SPDR S&P 500 ETF Trust (SPY) opened the session flat, proceeded to fall by as much as 1.6%. The index fund then recovered all of its losses and then some to trade up by about 0.2%.

In addition to weighing Harris's apparent rising fortunes following the debate, investors were considering how the latest reading on inflation would impact markets. While the Consumer Price Index (CPI) for August met analysts' expectations, the core CPI came out slightly higher than forecast on Wednesday, dashing hopes of a 50-basis point rate cut at next week’s Fed policy meeting.

Fed funds futures are now pricing in an 87% probability of a smaller 25 basis point cut, something that seems to be weighing on stocks of smaller companies today.

On the other hand, mega cap tech stocks, like those that dominate the Invesco QQQ Trust (QQQ), are outperforming."

QQQ was last trading higher by 1% versus a 0.6% decline for the Invesco S&P 500 Equal Weight ETF (RSP) and a slight decline for the iShares Russell 2000 ETF (IWM).

The Fed is set to make its decision on Wednesday, Sept. 18, the second day of its Federal Open Market Committee meeting.