Inflation Fears Weigh on Stocks Ahead of Key Earnings Reports

The S&P 500 and Nasdaq are set for a lower open on Wednesday as hotter-than-expected inflation adds to bets on a September interest rate hike. According to a Commerce Department report, the Personal Consumption Expenditures index rose 3.7% annually in July, slightly above expectations of 3.6%. Core PCE also rose 3.3% in the same period, in line with estimates.

Expectations of a rate hike in September have moved up to about 40% from nearly 36% before the data, according to LSEG data. Jeff Buchbinder, chief equity strategist at LPL Financial, noted that 'we're clearly still in a period where inflation is sticky and it's temporarily putting upward pressure on interest rates - an important factor in keeping this bull market for stocks going.'

Nvidia's quarterly earnings are also on the agenda, with investors closely watching the chip heavyweight's update. A stellar report could deepen the divide between software stocks, which have taken a beating this year, and semiconductors, which have capitalized heavily on the AI euphoria.