The US stock market experienced a pullback today following the release of the latest US PPI report, signaling stronger-than-expected wholesale inflation. The S&P 500 Index (SPX) (SPY) fell -0.24%, the Dow Jones Industrial Average (DOWI) (DIA) dropped -0.36%, and the Nasdaq 100 Index (IUXX) (QQQ) edged down -0.11%. Futures for September E-mini S&P (ESU25) and Nasdaq (NQU25) also reflected the pullback, down -0.39% and -0.30%, respectively.
US PPI Report Surprises and Interest Rate Implications
The July US final-demand PPI came in at +0.9% month-over-month and +3.3% year-over-year, well above expectations of +0.2% m/m and +2.5% y/y. Core PPI, excluding food and energy, rose +0.9% m/m and +3.7% y/y, surpassing forecasts of +0.2% m/m and +3.0% y/y. These figures prompted investors to reassess expectations for Federal Reserve rate cuts, moving away from pricing in a potential -50 basis point reduction at the September FOMC meeting.
San Francisco Fed President Mary Daly emphasized caution, stating that a -50 bp cut could signal undue urgency given the labor market’s current strength. Daly continues to support two rate cuts this year but warned that three cuts would depend on further signs of labor market fragility. Meanwhile, Treasury Secretary Scott Bessent clarified that his recent dovish comments did not signal a directive for Fed action.
Labor Market and Economic Indicators
US weekly initial jobless claims declined by -3,000 to 224,000, close to expectations, while continuing claims fell by -15,000 to 1.953 million, reflecting a slightly resilient labor market. Retail sales for July are projected to rise +0.6% m/m, with core retail sales excluding autos expected to increase +0.3%. Industrial and manufacturing production reports are forecasted to remain flat, while the University of Michigan’s consumer sentiment index for August is expected to climb to 62.0.
Trade and Tariff Developments
Market attention also remains on trade tensions. President Trump extended the US-China tariff truce for 90 days and imposed a 100% tariff on semiconductor imports unless companies commit to domestic production. Additionally, US tariffs on imports from India could rise to 50% amid geopolitical concerns. Bloomberg Economics notes that these tariffs would push average US tariff rates to 15.2%, up from 13.3% earlier this year.
Market Movers
Tech and chip stocks gave back some gains following yesterday’s rally. Tesla (NASDAQ:TSLA) fell over -1%, while Amazon (NASDAQ:AMZN) led gains above +2%. Other notable movers include ON Semiconductor (ON), Microchip Technology (NASDAQ:MCHP), Align Technology (NASDAQ:ALGN), and NXP Semiconductors (NASDAQ:NXPI), all down more than -2%.
Cisco Systems (NASDAQ:CSCO) retreated -1% following cautious fiscal guidance, while Deere & Co (NYSE:DE) slid over -6% due to lower grain prices and tariff uncertainty impacting equipment demand. Dow Inc (NYSE:DOW) fell -1% despite a rating upgrade, and NetEase (NASDAQ:NTES) dropped -2% after missing Q2 sales expectations. CVS Health (NYSE:CVS) rose nearly +1% on a Baird upgrade, reflecting confidence in its turnaround strategy.
Outlook
With over 82% of S&P 500 firms reporting Q2 earnings, overall earnings growth is tracking +9.1% y/y, exceeding pre-season expectations of +2.8%. Investors are now weighing the US PPI report alongside Treasury yields, Fed guidance, and trade developments to recalibrate their strategies for the remainder of the week. European markets saw mixed results, with the Euro Stoxx 50 up +0.29%, while Japan’s Nikkei Stock 225 declined -1.45%.
The strong US PPI report underscores persistent inflationary pressures, keeping investors cautious as they navigate the balance between economic growth, interest rates, and geopolitical uncertainties.
The strong US PPI report has also affected the bond market. September 10-year T-notes (ZNU25) fell -6 ticks, pushing the 10-year yield up +2.9 basis points to 4.262%. European government bonds similarly rose, with the 10-year German bund yield up +2.3 bp at 2.703% and the UK gilt yield up +2.9 bp at 4.618%.
Investors remain focused on upcoming economic data and potential Fed actions. Any further surprises in inflation, employment, or trade negotiations could trigger volatility in equities, bonds, and currency markets. As markets digest the US PPI report, risk management and portfolio diversification will remain key strategies for navigating the current uncertain economic environment.
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