Wall Street muted as hot inflation fuels rate-hike bets

Wall Street's main indices are subdued as investors stick to the sidelines ahead of AI bellwether Nvidia's quarterly earnings, while hotter-than-expected inflation bolstered bets on a September interest rate hike.

A Commerce Department report showed that annual US inflation increased 3.7 per cent in the 12 months through July, just above the 3.6 per cent expected by analysts, while the economy grew 1.5 per cent in the second quarter, a revised estimate showed.

The case for a Federal Reserve interest rate hike strengthened slightly after the data, with Fed funds futures showing about a 44 per cent chance of a September rate increase, up from roughly 36 per cent just before the data release.

"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," said Jeff Buchbinder, chief equity strategist at LPL Financial.

On the S&P 500, information technology and industrials were the biggest boosts, rising 0.3 per cent and 1.0 per cent respectively.

Microsoft and Apple led gains among megacaps, each rising 0.5 per cent.

AI chip giant Nvidia lost 0.4 per cent ahead of its closely watched quarterly report.

Anything less than a stellar report could rekindle doubts about the sustainability of the AI boom and set the tone for tech stocks for the rest of the week.

"This market is a tug of war between earnings and interest rates and, up to this point, earnings have been winning that battle. As long as the fundamentals remain strong, (the) market is going to hold up okay," Buchbinder said.

Bumper results could also deepen the divide between software stocks that have taken a beating this year, and semiconductors, which have capitalised heavily on the AI euphoria.

In early trading on Wednesday, the Dow Jones Industrial Average fell 21.54 points, or 0.04 per cent, to 53,555.86, the S&P 500 gained 2.24 points, or 0.03 per cent, to 7,679.52 and the Nasdaq Composite lost 13.85 points, or 0.06 per cent, to 26,137.16.

Declines in Alphabet and some healthcare stocks kept the S&P 500 and Nasdaq range-bound.

Among stocks, Meta agreed to pay a maximum $US16.68 billion ($A23.23 billion) and make major changes to Facebook and Instagram to resolve claims by US states of harm to children.

Its shares, however, reversed pre-market gains to trade 0.6 per cent lower after open.