Wall Street edges back from its records

U.S. stocks edged back from their records Thursday after reports showed inflation was a touch warmer last month than expected and more workers filed for unemployment benefits last week.

The Standard & Poor’s 500 slipped 0.2%, and the Dow Jones industrial average fell 0.1%, after setting all-time highs the day before. The Nasdaq composite edged down by 0.1%.

Stocks had stormed to records in large part on excitement about easing interest rates, now that the Federal Reserve is cutting them as it widens its focus to include keeping the economy humming instead of just fighting high inflation.

Lower rates ease the brakes off the economy and boost prices for investments, but the pace of further cuts will depend on whether inflation continues to head down toward the Fed’s 2% target, as it expects.

Thursday’s report showed inflation slowed to 2.4% in September from 2.5% in August, according to the consumer price index, but economists were expecting an even sharper slowdown to 2.3%. And after ignoring the swings for food, gasoline and other energy prices, underlying trends that economists say can be a better predictor for where inflation is heading were a touch hotter than expected.

At the same time, a separate report showed 258,000 U.S. workers filed for unemployment benefits last week. That number is relatively low compared with history, but it was a sharper acceleration than economists expected. Hurricane Helene and a strike by workers at Boeing may have helped make the number look worse.

In the bond market, Treasury yields rose immediately after the release of the economic data, only to then swing up and down as traders tried to handicap what it would all mean for the Fed.

The yield on the 10-year Treasury held at 4.07%, the level it was at late Wednesday. The two-year Treasury yield, which more closely tracks expectations for the Fed, fell to 3.96% from 4.02% late Wednesday.

Traders are mostly convinced that the Fed will cut its main interest rate by a quarter of a percentage point at its next meeting, according to data from CME Group. But some are holding on to bets that it could leave the federal funds rate alone in November. That’s after many traders this month were calling for a larger-than-usual cut of half a percentage point, before a set of stronger-than-expected data on the economy wiped out such calls.

“Unless the jobs report that comes out on November 1st shows a dramatic drop in employment,” a traditional-sized cut of a quarter of a percentage point “might even come across as a little aggressive,” said Brian Jacobsen, chief economist at Annex Wealth Management.

On Wall Street, Toronto-Dominion fell 5.3% after it agreed to pay $3.09 billion as part of a resolution of U.S. investigations into its compliance programs related to money laundering. The company also agreed to a cap on how big two U.S. banking subsidiaries can grow.

Delta Air Lines lost 1.1% after reporting weaker results for the summer than analysts expected. The company said bookings for holiday travel are strong, but it’s anticipating a drop in flying around the election.

Oil prices, meanwhile, rose to claw back their sharp drop from earlier in the week. A barrel of Brent crude added 3.7% to settle at $79.40. A barrel of benchmark U.S. crude gained 3.6% to $75.85.

That helped drive stocks in the energy industry higher, which kept the losses for U.S. stock indexes in check. Exxon Mobil added 0.9% and was one of the strongest forces pushing upward on the S&P 500, while Valero Energy climbed 2.4%.

All told, the S&P 500 slipped 11.99 points to 5,780.05. The Dow fell 57.88 points to 42,454.12, and the Nasdaq composite lost 9.57 points to 18,282.05.

In stock markets abroad, Hong Kong’s Hang Seng jumped 3% in its latest sharp swing.

After rising on hopes for stimulus to prop up the world’s second-largest economy, Chinese stocks slumped earlier this week on disappointment that more isn’t on the way. But there’s still hope that more may come.

Choe writes for the Associated Press. AP writers Yuri Kageyama and Matt Ott contributed to this report.