June 28 (Reuters) - U.S. stocks were muted on Friday after an early rally fizzled as investors digested in-line inflation data, while Nike was set for its steepest one-day fall in over two decades after a gloomy forecast.
Volume is expected to surge toward the closing bell, with potential volatility, as the FTSE Russell finalizes the annual reconstitution of its indexes.
"The inflation numbers were exactly as we expected, so they don't provide a catalyst to move up or down. It's not a market moving event," said Steve Sosnick, chief strategist at Interactive Brokers.
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 Federal Reserve's monetary policy.
The Commerce Department report also showed consumer spending rose marginally last month, fueling optimism that the 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.
John Kerschner, head of US securitized products at Janus Henderson Investors, said in a note he will focus on Fed officials' comments in the coming weeks to gauge the path of monetary policy.
Traders have maintained bets on two cuts despite Fed projections of just one this year, as they hope inflation will keep cooling.
The S&P 500 energy (.SPNY), and financials (.SPSY), indexes were the top sectoral gainers, while utilities (.SPLRCU), fell to the bottom with a 1.46% decline.
Some megacaps fell after Treasury yields reversed early losses to inch higher. Meta Platforms (META.O), Alphabet (GOOGL.O), and Amazon.com (AMZN.O), fell between 0.84% and 1.55%.
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.
Nike (NKE.N), slumped 20.12% after forecasting a surprise drop in fiscal 2025 revenue, weighing on the broader consumer discretionary sector (.SPLRCD).
As of 02:33 p.m. ET, the Dow Jones Industrial Average (.DJI), fell 118.99 points, or 0.30%, to 39,045.07. The S&P 500 (.SPX), lost 9.44 points, or 0.17%, at 5,473.43 and the Nasdaq Composite (.IXIC), fell 37.12 points, or 0.21%, to 17,821.56.
The S&P 500 and the Nasdaq indexes were set for quarterly gains, but the Dow (.DJI), was on track to drop over 1%, highlighting the divergence between the more tech-heavy indexes and the rest of the market.
Among individual stocks, optical networking gear maker Infinera (INFN.O), jumped 17.78% after Nokia (NOKIA.HE), said it would acquire the company in a $2.3 billion deal.
Advancing issues outnumbered decliners by a 1.32-to-1 ratio on the NYSE, which had 234 new highs and 65 new lows.
The S&P 500 posted 16 new 52-week highs and one new low while the Nasdaq Composite recorded 49 new highs and 107 new lows.
Reporting by Ankika Biswas and Lisa Mattackal in Bengaluru; Editing by Maju Samuel and Richard Chang
