In paragraph 5 corrects closing moves for software, technology indexes
US inflation increases less than expected in January
Applied Materials jumps after upbeat Q2 earnings forecast
Defensive sectors outperform
By Sinéad Carew and Twesha Dikshit
Feb 13 (Reuters) - The S&P 500 closed barely higher on Friday, with technology and communications services down on nagging fears of AI-disruption but equities drew support from optimism that cooling inflation data would support Federal Reserve rate cuts.
Data showed U.S. consumer prices increased less than expected in January, prompting traders to slightly raise the chance of a 25 basis point interest-rate cut in June to 52.3% from 48.9%, according to the CME Group's FedWatch tool.
"The bottom line is, this is a good number. It suggests that we're still away from the Fed target of 2%, but inflation is not accelerating and perhaps maybe we're beginning to see some daylight in terms of the tariff inflationary aspect of it. It's still evident, but it's moderating," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
According to preliminary data, the S&P 500 .SPX gained 2.32 points, or 0.03%, to end at 6,835.08 points, while the Nasdaq Composite .IXIC lost 52.04 points, or 0.23%, to 22,545.11. The Dow Jones Industrial Average .DJI rose 47.44 points, or 0.10%, to 49,499.42.
Equity markets have pulled back from record levels recently as fears of disruption from artificial intelligence fueled a selloff in sectors spanning software and insurance to trucking companies. Still, on Friday the S&P 500 software and services index .SPLRCIS closed up 0.9%, while the S&P 500 tech sector fell 0.5%.
Friday's inflation data encouraged investor hopes for Fed rate cuts after Wednesday's stronger-than-expected January jobs data sowed doubts.
Against the backdrop of AI worries, looming U.S. mid-term elections in November and Fed Chair Jerome Powell expected to be replaced by Kevin Warsh in May, Phil Orlando, chief market strategist at Federated Hermes predicted more choppy trading ahead.
"In the data this morning inflation was better than expected and we think the trajectory continues to work lower," said Orlando. He added that historically when a Fed leadership transition happens in a mid-term year, the market has hit a "double-digit air-pocket every time that's occurred."
Megacap tech stocks were weak with Nvidia NVDA.O and Apple Inc AAPL.O providing big drags while Applied Materials AMAT.O provided a strong boost.
Defensive utilities .SPLRCU and real estate .SPLRCR sectors were top gainers among S&P 500's 11 major industry indexes.
Healthcare .SPXHC was also a boost with Dexcom DXCM.O and Moderna MRNA.O shares both rallying after their fourth-quarter earnings report.
Applied Materials shares rallied after the chipmaking-equipment firm forecast second-quarter revenue and profit above Wall Street expectations.
Networking equipment provider Arista Networks ANET.N also gained during the session after forecasting annual revenue above expectations.
White House trade adviser Peter Navarro said there was no basis to reports that the administration was planning to reduce steel and aluminum tariffs.
Still some steelmakers came under pressure including Nucor NUE.N and Steel Dynamics STLD.O. Also Aluminum producer Alcoa AA.N fell and Century Aluminum CENX.O shares tumbled.
(Reporting by Sinéad Carew in New York, Johann Cherian, Twesha Dikshit, Purvi Agarwal and Medha Singh in Bengaluru; Editing by Shilpi Majumdar, Pooja Desai and David Gregorio)
((sinead.carew@thomsonreuters.com))