U.S. Stocks Weaken After Early Rally Fizzles

U.S. stocks ended weaker after an early rally fizzled as investors digested in-line inflation data and weighed political uncertainty after the U.S. presidential debate.

Nike had its steepest one-day fall in over two decades after a gloomy forecast.

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.

The first debate 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.

Treasury yields reversed early losses to end higher, adding pressure on some mega cap 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 Dow Jones Industrial Average fell 41.12 points, or 0.11%, to 39,122.94. The S&P 500 lost 22.57 points, or 0.41%, at 5,460.30 and the Nasdaq Composite dropped 126.08 points, or 0.71%, to 17,732.60.

Traders have maintained bets on two cuts despite Fed projections of just one this year, as they hope inflation will keep cooling.