Dow closes at record high as tame inflation report also lifts small caps

The blue-chip Dow Jones Industrial Average closed at a record high as a subdued inflation report stoked hopes for more Federal Reserve rate cuts, which also boosted small-cap stocks and enabled Wall Street's three main indexes to post weekly gains.

The technology-heavy Nasdaq slipped for the day while the S&P 500 edged slightly lower, but both indexes stayed close to recent record highs.

“The market at this point… (is) pretty much pricing in a soft landing, and pricing in that we have defeated inflation, and that the Fed will be able to lower rates without causing a bunch of harm to the economy”, said Liz Young Thomas, head of investment strategy at SoFi in New York.

The Commerce Department reported a moderate rise in consumer spending while inflation pressures continued to ease. Separately, the University of Michigan's final September reading on consumer sentiment came in at 70.1, surpassing economists' expectations of 69.3, according to a Reuters poll.

The Dow Jones Industrial Average rose 137.89 points, or 0.33 per cent, to 42,313.00, the S&P 500 lost 7.20 points, or 0.13 per cent, to 5,738.17 and the Nasdaq Composite lost 70.70 points, or 0.39 per cent, to 18,119.59.

The Russell 2000 index, which tracks small caps that fare better in a low-rate environment, gained 0.67 per cent to a one-week high.

Shares of Nvidia dropped 2.17 per cent, weighing on the technology-heavy Nasdaq.

Investors now slightly favor a 50-basis-point cut at the Fed's next meeting with a 52.1 per cent chance, up from a coin toss before the data, as per the CME Group's FedWatch Tool.

Cooling price pressures prompted the Fed to cut rates by 50 bps last week. Focus will now shift to a slew of labor market reports due next week.

Among individual stocks, Bristol-Myers Squibb added 1.58 per cent after the US FDA approved its schizophrenia drug.

Costco Wholesale lost 1.76 per cent after posting downbeat fourth-quarter revenue.

US-listed shares of Chinese firms such as Alibaba rose 2.15 per cent, PDD Holdings climbed 4.67 per cent and NetEase gained 2.65 per cent after China's central bank lowered interest rates and injected liquidity into the banking system.

The optimism extended to miners, with Arcadium gaining 2.13 per cent, and US-listed shares of BHP also adding 1.81 per cent.

Advancing issues outnumbered decliners by a 1.82-to-1 ratio on the NYSE. There were 605 new highs and 31 new lows on the NYSE.

The S&P 500 posted 42 new 52-week highs and no new lows while the Nasdaq Composite recorded 74 new highs and 65 new lows.

Volume on US exchanges was 11.50 billion shares, compared with the 11.87 billion average for the full session over the last 20 trading days.