By Sinéad Carew and Sruthi Shankar
(Reuters) - The S&P 500 closed Monday's session slightly lower as investors held their breath before a crucial inflation reading that could provide clues as to how long the U.S. Federal Reserve will keep interest rates elevated.
After the indexes enjoyed a solid rally on Friday, the market turned its focus on Monday to Consumer Price Index (CPI) data, due out Tuesday morning. Economists expect a headline increase of 3.3% for October, easing from 3.7% in September. But core prices are expected to be unchanged from the previous month.
The CPI reading, along with labor market, "are clearly in the driver's seat for what matters to financial markets, because it dictates where Fed policy goes from here," said Matt Stucky, chief portfolio manager for equities at Northwestern (NASDAQ:NWE) Mutual Wealth Management Company in Milwaukee, Wisconsin.
"The market has the expectation the Fed is done with interest rate hikes and for that to be true, you need to have continued progress on the inflation front," along with labor market cooling, he said.
Traders have priced in a nearly 86% chance the Fed holds interest rates steady in December, according to the CME Group's (NASDAQ:CME) FedWatch tool.
While the CPI reading was the key issue keeping investors "in a holding pattern" on Monday, Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut said they were also digesting a weaker U.S. credit outlook issued.
Moody's (NYSE:MCO) late on Friday lowered its outlook on the U.S. credit rating to "negative" from "stable", citing large fiscal deficits and a decline in debt affordability.
This added to investor reluctance to make big decisions ahead of a weekend deadline that could potentially result in a U.S. government shutdown, O'Rourke said.
U.S. House of Representatives Speaker Mike Johnson unveiled a Republican stopgap spending measure on Saturday aimed at averting a shutdown, but the measure quickly met opposition from lawmakers from both parties in Congress.
However on Monday afternoon, top U.S. Senate Democrat Chuck Schumer expressed tentative support for Johnson's short-term funding bill that would keep the government open past the weekend.
The Dow Jones Industrial Average rose 54.77 points, or 0.16%, to 34,337.87, the S&P 500 lost 3.69 points, or 0.08%, to 4,411.55 and the Nasdaq Composite dropped 30.37 points, or 0.22%, to 13,767.74.
The major U.S. stock indexes had rebounded so far this month, fueled by a stronger-than-expected earnings season and hopes that U.S. interest rates are near their peak.
Among the S&P 500's 11 major sectors energy was the biggest gainer, ending up 0.7% while utilities was the biggest loser, falling 1.2%.
Helping keep the Dow afloat, Boeing (NYSE:BA) rallied 4% on Monday after Bloomberg News reported that China is considering resuming purchases of 737 Max aircraft.
And, Dubai's Emirates placed an order for 90 more Boeing 777X jets at the opening of the Dubai Airshow on Monday.
The S&P healthcare index was the benchmark's second biggest percentage gainer, adding 0.6%. It's biggest percentage gainer was dialysis company Davita Inc, which rose 6.5%.
Other medtech companies rallying included Insulet (NASDAQ:PODD), which added 5.6% and Dexcom (NASDAQ:DXCM), up 4.6%, along with Abbott's 1.9% gain as analysts reacted to data about the cardiovascular benefits for Novo Nordisk (NYSE:NVO)'s weight-loss drug Wegovy.
While Tesla (NASDAQ:TSLA) shares, finishing up more than 4%, added some support to the consumer discretionary index declines in heavyweight stocks such as Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) helped weigh down the S&P 500 technology index.
Advancing issues outnumbered declining ones on the NYSE by a 1.08-to-1 ratio; on Nasdaq, a 1.03-to-1 ratio favored decliners.
The S&P 500 posted 24 new 52-week highs and 7 new lows; the Nasdaq Composite recorded 52 new highs and 227 new lows.
On U.S. exchanges 9.34 billion shares changed hands compared with the 10.97 billion after for the last 20 sessions.