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Traders add to Fed rate cut bets as inflation eases

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Nike ( NKE ) slumps after results

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Infinera ( INFN ) jumps after Nokia to buy company

(Updates to 4 p.m. ET)

By Ankika Biswas, Lisa Pauline Mattackal and Carolina Mandl

June 28 (Reuters) -

U.S. stocks ended weaker on Friday after an early rally

fizzled as investors digested in-line inflation data and weighed

political uncertainty after the U.S. presidential debate, while

Nike ( NKE ) had steepest one-day fall in over two decades after a

gloomy forecast.

"I don't think the inflation number changes much because

the Federal Reserve has been pretty serious about their 2%

target and remains disciplined," said Ann Miletti, Allspring's

head of active equity.

Data showed U.S.

monthly inflation

was unchanged in May, an

encouraging development

after strong price increases earlier this year raised

doubts over the effectiveness of the Fed's monetary policy.

The Commerce Department report also showed consumer

spending rose marginally last month, fueling optimism that the

U.S. central bank could engineer a much-desired "soft landing"

for the economy.

Bets on a rate cut in September rose to 66% after the

personal consumption expenditures price index release, LSEG

FedWatch data showed.

Traders have maintained bets on two cuts despite Fed

projections of just one this year, as they hope inflation will

keep cooling.

The first debate on Thursday between U.S. President Joe

Biden and Republican rival Donald Trump also weighed on stocks,

said Thomas Martin, senior portfolio manager at Globalt

Investments, citing the incumbent's shaky performance.

"People are trying to think about what's going to happen

with the presidential election. So instead of uncertainty

decreasing after the debate, it's increased," he said.

Treasury yields reversed early losses to end

higher

, adding pressure on some megacap stocks.

San Francisco Fed President

Mary Daly

acknowledged the cooling inflation, and noted that it is

"good news that policy is working." Fed Governor Michelle Bowman

said the central bank would follow its own path as its inflation

goal has yet to be reached.

The S&P 500 energy index posted gains, while

utilities fell.

Nike ( NKE ) slumped after forecasting a surprise drop in

fiscal 2025 revenue, weighing on the broader consumer

discretionary sector.

According to preliminary data, the S&P 500 lost 23.71

points, or 0.43%, to end at 5,460.70 points, while the Nasdaq

Composite lost 130.01 points, or 0.73%, to 17,728.68.

The Dow Jones Industrial Average fell 54.11 points, or

0.14%, to 39,109.95.

The FTSE Russell finalized the

reconstitution

of its indexes at the end of the session.

The S&P 500 and the Nasdaq indexes were set for

quarterly gains, but the Dow was on track to drop,

highlighting the divergence between the more tech-heavy indexes

and the rest of the market.

Among individual stocks, optical networking gear maker

Infinera ( INFN ) jumped after Nokia said it would

acquire the company in a $2.3 billion deal.