Stock Market Update

[BRIEFING.COM] Stocks are rallying today in response to a pleasing Producer Price Index for July. The S&P 500 and Nasdaq Composite trade 1.5% and 2.2% higher, respectively. 

Total PPI jumped 0.1% month-over-month in July (Briefing.com consensus 0.1%) while core PPI, which excludes food and energy, was flat (Briefing.com consensus 0.2%). The monthly figures left total PPI up 2.2% year-over-year, versus 2.7% in June, and core PPI up 2.4%, versus 2.9% in June.

The welcome disinflation in the report contributed to optimism around the Fed's rate cut path. With today's move higher, the S&P 500 trades above 5,400 for the first time since August 1, which was before the jobs report that precipitated last Monday's sharp selloff. 

Treasury yields, which were already lower following some weak new loan data out of China and some weak economic sentiment data out of the eurozone, dropped in response to the PPI data. The 10-yr note yield is down six basis points to 3.85%. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, is down seven basis points to 3.95%.

The price action in Treasuries has provided support to the stock market, along with outsized moves in semiconductor names and mega cap stocks. The Vanguard Mega Cap Growth ETF (MGK) shows a 2.2% gain the PHLX Semiconductor Index (SOX) trades 3.8% higher.

Just about everything is coming along for the upside ride. Ten of the S&P 500 sectors trade higher and 25 of the 30 Dow components show gains. Even Dow component Home Depot (HD 349.73, +3.92, +1.1%) trades higher now after sliding as much as 1.9% in response to below-consensus guidance.

Fellow discretionary-related name Starbucks (SBUX 92.76, +15.71, +20.4%) is the biggest advancer in the S&P 500, surging on the news that CEO Laxman Narasimhan has stepped down and will be replaced by Chipotle (CMG 50.73, -5.13, -9.2%) CEO Brian Niccol.

Reviewing today's economic data:

• July NFIB Small Business Optimism 93.7; Prior 91.5
• July Core PPI 0.0% (Briefing.com consensus 0.2%); Prior was revised to 0.3% from 0.4%, July PPI 0.1% (Briefing.com consensus 0.1%); Prior 0.2%
  • The key takeaway from the report is the disinflation trend in total and core PPI, as that is moving in a necessary direction to drive a rate cut by the Fed.