Stock Market Update

[BRIEFING.COM] The stock market opened to broad-based gains following a better-than-feared July CPI report, pushing the S&P 500 (+1.0%) and Nasdaq Composite (+1.2%) to fresh record high levels. 

Total CPI increased 0.2% month-over-month, as expected, while core CPI, which excludes food and energy, rose 0.3%, also as expected. Those readings left CPI up 2.7% year-over-year, unchanged from June, and core CPI up 3.1% year-over-year versus 2.9% in June.

While increases across the goods indexes prompt some tariff-induced inflation concerns, the market has responded enthusiastically to the report, focusing on the fact that the headline numbers were in line with expectations.

The market also benefits from the probability of a 25-basis point rate cut to 4.00-4.25% increasing to 92.2% versus 85.9% a day ago, according to the CME FedWatch Tool.

Today's buying activity has been prominent, with advancers outpacing decliners by a roughly 10-to-3 ratio on the NYSE and a roughly 7-to-3 ratio on the Nasdaq.

Nine S&P 500 sectors trade in positive territory, with communication services (+2.1%), financials (+1.3%), information technology (+1.0%), and industrials (+1.0%) sectors all holding gains over 1.0%.

Strong performances from airline stocks underpin a 2.9% gain in the Dow Jones Transportation Average, while strength in chipmakers has the PHLX Semiconductor Index up 2.4%.

Smaller-cap stocks have especially benefited from today's advance. The Russell 2000 boasts a 2.2% gain today, while the S&P Mid Cap 400 holds a healthy gain of 1.7%. Mega-cap stocks are still advancing (the Vanguard Mega Cap Growth ETF holds a gain of 0.9%), but smaller stocks are receiving more attention with today's risk-on mentality. 

A lack of other notable developments has kept the market focused on today's upward momentum. Kansas City Fed President Jeff Schmid (FOMC voting member) stated in a speech today that limited tariff effect on inflation is a reason for policy to stay on hold, not necessarily a reason for the Fed to cut rates, though the market was little swayed by his comments.

Reviewing today's data:

• July NFIB Small Business Optimism 100.3; Prior 98.6
• July CPI 0.2% (Briefing.com consensus 0.2%); Prior 0.3%, July Core CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.2%
  • The key takeaway from the report lurks in the details. The headline readings look good, yet there are enough component indexes exhibiting tariff-induced inflation pressures (i.e., large month-over-month changes) that one can't walk away with an "all-clear" inflation signal from this report. It seems doubtful that all Fed officials will, given the 3.1% year-over-year reading for core CPI.