Stocks See Support from Increased Odds for Fed Rate Cut after CPI Report

The S&P 500 Index ($SPX) (SPY) today is up +0.44%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.36%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.52%.  September E-mini S&P futures (ESU25) are up +0.56%, and September E-mini Nasdaq futures (NQU25) are up +0.61%. 

Stocks gained ground this morning after the US CPI report was largely in line with market expectations, thus strengthening expectations for a Fed rate cut at the September meeting.  On a year-on-year basis, the July headline CPI of +2.7% y/y was slightly weaker than expected, but the core CPI of +3.1% y/y was slightly stronger than expected. The chances for a Fed rate cut at its Sep 16-17 meeting improved to 93% after today's CPI report from 88% on Monday.

The July US CPI report of +0.2% m/m was in line with market expectations.  The July CPI year-on-year figure of +2.7% y/y was unchanged from June and was slightly weaker than expectations for a +0.1 point increase to +2.8%.  The July US core CPI report of +0.3% m/m was in line with expectations.  The July year-on-year core CPI figure of +3.1% y/y was up from June's +2.9% and was slightly stronger than market expectations of +3.0%.  July's headline CPI of +2.7% y/y and core CPI of +3.1% y/y were up from the post-Covid 4.25-year lows of +2.3% and +2.8%, respectively, posted earlier this year.

President Trump overnight signed an executive order extending the US-China tariff truce by 90 days through November 10 to allow more time for negotiators to reach a final deal.  That was in line with reporting yesterday by CNBC.  The executive order postponed today's original deadline.  That followed previous news that Nvidia and AMD agreed to pay the US government 15% of their revenues on sales of certain lower-powered AI chips sold to China in exchange for export licenses to allow those sales. However, Bloomberg reported today that China's government urged Chinese companies to avoid using Nvidia's H20 processors, particularly for government-related purposes.

The markets are awaiting this Friday's Trump-Putin summit in Alaska for any progress in ending the Russian-Ukrainian war.  President Trump on Monday downplayed expectations of a breakthrough, saying the summit is a "feel-out meeting" to end the war in Ukraine.  Also, recent comments from Ukrainian President Zelenskiy dampened hopes for a quick end to the war when he rejected any talk of Ukraine ceding territory to Russia.

In recent tariff news, President Trump early Tuesday extended the tariff truce with China, which was to expire on Tuesday, for another 90 days.  Last Wednesday, President Trump announced that he will impose a 100% tariff on semiconductor imports.  Still, companies would be eligible for exemptions if they demonstrate a commitment to building their products in the US.  However, the US will levy a separate tax on imports of electronic products that employ semiconductors.  Also, President Trump announced last Wednesday that he will double tariffs on US imports from India to 50% from the current 25% tariff, due to India's purchases of Russian oil.  Last Tuesday, Mr. Trump said that US tariffs on pharmaceutical imports would be announced "within the next week or so." According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced.

The market's focus this week is on corporate earnings results and any new trade or tariff news.  On Thursday, weekly initial unemployment claims are expected to fall by -1,000 to 225,000.  Also on Thursday, the July final-demand PPI is expected to increase to +2.5% y/y from +2.3% y/y in June, and the July PPI ex-food and energy is expected to rise to +2.9% y/y from +2.6% y/y in June.  On Friday, July US retail sales are expected to climb +0.5% m/m and retail sales ex-autos are expected to rise +0.3% m/m.  Also on Friday, July manufacturing production is expected to remain unchanged m/m.  Finally, the University of Michigan's Aug US consumer sentiment index is expected to climb by +0.3 to 62.0.

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 93% at the September 16-17 FOMC meeting and 62% at the following meeting on October 28-29.

Earnings reports indicate that S&P 500 earnings for Q2 are on track to rise +9.1% y/y, much better than the pre-season expectations of +2.8% y/y and the most in four years, according to Bloomberg Intelligence.  With over 82% of S&P 500 firms having reported Q2 earnings, about 82% of companies exceeded profit estimates. 

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.26%, adding to Monday's small loss of -0.30%.  China's Shanghai Composite rallied to a 10-month high and closed up +0.50%.  Japan's Nikkei Stock 225 today closed up +2.15% and posted a new record high.

Interest Rates

September 10-year T-notes (ZNU25) today are down -5 ticks, and the 10-year T-note yield is up +1.8 bp at 4.302%.  The T-note market remains concerned about the inflation outlook despite today's CPI report, which was largely in line with market expectations.  T-note prices have support from today's -2.0 bp decline in the 10-year inflation expectations rate to 2.380%.

European government bond yields today are trading higher.  The 10-year German bund yield is up +2.4 bp at 2.720%.  The 10-year UK gilt yield is up +4.9 bp at 4.614%.

Swaps are discounting the chances at 6% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

The Magnificent Seven are all trading higher today except for Amazon (AMZN) and Nvidia (NVDA).  Nvidia is trading slightly lower after a report that the Chinese government is discouraging Chinese companies from buying Nvidia AI chips even if the US government allows the sale.  Meta (META) is the best performer of the Seven with a gain of more than +2%.

Hanesbrands (HBI) is up more than +30% after the Financial Times reported that a deal is nearing for Gildan Activewear to acquire Hanesbrands for as much as $5 billion in enterprise value. 

Paramount Skydance (PSKY) is up +3% after Guggenheim started coverage on the company with a buy rating and a $13 price target due to a positive outlook for the merged entities of Paramount Global and Skydance Media.

Starbucks (SBUX) is up more than +1% on an upgrade to outperform from neutral from Baird.

Cardinal Health (CAH) is down more than -9% after its fiscal Q4 operating income was below market expectations.

Getty Images (GETY) is down more than -4% on disappointment after releasing Q2 earnings and guidance.

Earnings Reports (8/12/2025)

Cardinal Health Inc (CAH), Cava Group Inc (CAVA), Everus Construction Group Inc (ECG), H&R Block Inc (HRB), Lumentum Holdings Inc (LITE), Madison Square Garden Sports C (MSGS), On Holding AG (ONON), Smithfield Foods Inc (SFD).