Stock Market Update

[BRIEFING.COM] The stock market opened to broad-based losses following a hotter-than-expected July PPI report, and a lack of other notable developments has kept the major averages seated with modest losses. 

While Tuesday's release of the July CPI came in largely as expected and pushed the S&P 500 (-0.1%) and Nasdaq Composite (flat) to fresh record highs, the July PPI saw prices rise across all stages of production at a higher than expected rate. The headline and PPI less food and energy figures both jumped 0.9% month-over-month in July, following unchanged readings in June. 

The data sent stock futures lower as it prompted concerns that the Fed may not be as quick to cut rates as was initially thought following the friendlier CPI reading. 

The probability for a 25 basis-point rate cut at the September FOMC meeting still stands at 90.6%, according to the CME FedWatch Tool, though this figure stood at 99.9% before the July PPI release.

Furthermore, it severely hinders the argument for a larger rate cut, with Saint Louis Fed President Alberto Musalem (FOMC voting member) and San Francisco Fed President Mary Daly (FOMC nonvoting member) both stating today that current data does not reflect the need for a 50-basis point rate cut. 

While stocks have largely retreated today in response, the losses are modest in comparison to the rally that followed the July CPI report on Tuesday.

The S&P 500 (-0.1%) and Nasdaq Composite (flat) even briefly entered positive territory today, while the DJIA (-0.4%) has stayed below its baseline.

Decliners outpace advancers by a nearly 11-to-2 margin on the NYSE and a greater than 3-to-1 clip on the NASDAQ.

Eight S&P 500 sectors trade in negative territory, though a strong showing from several mega-cap names has the major averages holding more modest losses than what might be expected from such poor breadth figures.

Alphabet (GOOG 205.05, +2.02, +0.99%) and Meta Platforms (META 786.18, +6.10, +0.78%) contribute to the communication services (+0.9%) sector's outperformance, while Amazon (AMZN 231.15, +6.59, +2.93%) underpins a modest gain in the consumer discretionary sector (+0.2%). 

The Vanguard Mega Cap Growth ETF is up 0.2% today, helping the market-weighted S&P 500 (-0.1%) outpace the S&P 500 Equal Weighted Index (-1.1%). Meanwhile, the Russell 2000 (-2.0%) gives back a chunk of this week's impressive rally. 

While today's retreat at least temporarily keeps the major averages from further record hunting, they still hold healthy gains for the week, signalling a subdued reaction in the market to the underwhelming July CPI report. 

Separately, Treasury yields have been more sensitive to the inflation report. The 2-yr note yield is up five basis points to 3.74%, and the 10-yr note yield is up five basis points to 4.29%.

Reviewing today's data:

• July PPI 0.9% (Briefing.com consensus 0.2%); Prior 0.0%, July Core PPI 0.9% (Briefing.com consensus 0.2%); Prior 0.0%
  • The key takeaway from the report, other than that it completely flies in the face of the relatively friendly CPI report, is that wholesale prices rose appreciably across all stages of production and for both goods and services. The concern will be that this inflation will register in the PCE Price Index and keep the Fed from being as aggressive with its rate cut approach as had been envisioned following the CPI data.
• Weekly Initial Claims 224K (Briefing.com consensus 228K); Prior was revised to 227K from 226K, Weekly Continuing Claims 1.953 mln; Prior was revised to 1.968 mln from 1.974 mln
  • The key takeaway from the report is still the same. Layoffs are low, but finding a new job, if laid off, is taking longer.