Stock Market Update

[BRIEFING.COM] The stock market exhibited more muted action following today's in-line CPI print compared to yesterday's rally after the pleasing PPI print. The S&P 500 (+0.4%) and Dow Jones Industrial Average (+0.6%) closed with gains while the Nasdaq Composite settled fractionally higher than yesterday and the Russell 2000 logged a 0.5% decline.

Total CPI was up 0.2% month-over-month in July, as expected, and core-CPI, which excludes food and energy, was up 0.2%, also as expected. The index for shelter was up 0.4% month-over-month and accounted for nearly 90% of the increase in the all items index.

On a year-over-year basis, total CPI was up 2.9%, versus 3.0% in June, and core-CPI was up 3.2%, versus 3.3% in June.

The lackluster response in equities was due in part to some good news being priced in yesterday. Advancers led decliners by a 5-to-3 margin at the NYSE and decliners led advancers by the same margin at the Nasdaq.

Outsized moves are reserved for stocks with catalysts. Kellanova (K 80.28, +5.78, +7.8%) was the top performing stock in the S&P 500 after news that Mars will acquire Kellanova for $83.50/share in cash, or total consideration of $35.9 billion, including debt.

Alphabet (GOOG 162.03, -3.90, -2.4%) was an influential laggard after a Bloomberg report that the Department of Justice may be looking at breaking up the company following last week's court ruling that Alphabet violated search-related antitrust laws.

This price action, along with a decline in Meta Platforms (META 526.76, -1.78, -0.3%), pinned the S&P 500 communication services sector (-0.9%) in last place on the lineup. Meanwhile, the financial (+1.3%) and information technology (+0.6%) sectors logged some of the largest gains.

The CPI print also had the market repricing the likelihood of a 50 basis points rate cut at the September FOMC meeting. According to the CME FedWatch Tool, there is still a 100% probability of a 25 basis points rate cut in September after today's release, but the probability of a 50 basis points rate cut has been reduced to 35.5% from 53.0%.

The 2-yr note yield, which is most sensitive to changes in the fed funds rate, settled one basis point higher at 3.95%. The 10-yr note yield declined three basis points to 3.82%.

• Nasdaq Composite:+14.5% YTD
• S&P 500: +14.4% YTD
• S&P Midcap 400: +6.2% YTD
• Dow Jones Industrial Average: +6.2% YTD
• Russell 2000: +2.8% YTD

Reviewing today's economic data:

• Weekly MBA Mortgage Applications Index 16.8%; Prior 6.9%
• July CPI 0.2% (Briefing.com consensus 0.2%); Prior -0.1%, July Core CPI 0.2% (Briefing.com consensus 0.2%); Prior 0.1%
  • The key takeaway from the report is that it points to ongoing disinflation; hence, it won't change the market's belief that the Fed will cut rates by 25 basis points in September even though CPI inflation is comfortably above the Fed's 2% goal, which is oriented around PCE price inflation that is currently at 2.5%.

Wednesday's economic lineup features:

• 8:30 ET: July Retail Sales (Briefing.com consensus 0.3%; prior 0.0%), Retail Sales ex-auto (Briefing.com consensus 0.2%; prior 0.4%), weekly Initial Claims (Briefing.com consensus 232,000; prior 233,000), Continuing Claims (prior 1.875 mln), July Import Prices (prior 0.0%), Import Prices ex-oil (prior 0.2%), Export Prices (prior -0.5%), Export Prices ex-agriculture (prior -0.6%), and Empire State Manufacturing Survey (prior -6.6)
• 9:15 ET: July Industrial Production (Briefing.com consensus 0.1%; prior 0.6%) and Capacity Utilization (Briefing.com consensus 78.6%; prior 78.8%)
• 10:00 ET: June Business Inventories (Briefing.com consensus 0.2%; prior 0.5%) and August NAHB Housing Market Index (Briefing.com consensus 43; prior 42)
• 10:30 ET: Weekly natural gas inventories (prior +21 bcf)
• 16:00 ET: June Net Long-Term TIC Flows (prior -$54.6 bln)