Stocks Are Mixed After Hot PPI Report

The S&P 500 Index ($SPX) (SPY) is down -0.03%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.05%.  September E-mini S&P futures (ESU25) are down -0.09%, and September E-mini Nasdaq futures (NQU25) are down -0.01%. 

Stocks recovered from modest early losses and are trading narrowly mixed. Stocks are seeing downward pressure from today's strong US PPI report and today's +5 bp rise in the 10-year T-note yield.  In addition, San Francisco Fed President Mary Daly and St Louis Fed President Alberto Musalem today both threw cold water on the idea of a -50 bp rate cut at the September FOMC meeting.

Today's PPI report was much stronger than market expectations.  The PPI report suggested that the markets might have been overly optimistic about Tuesday's CPI report and that companies are passing through tariffs at the wholesale level at a higher pace than earlier thought.

The July US final-demand PPI report of +0.9% m/m and +3.3% y/y was substantially stronger than market expectations of +0.2% m/m and +2.5% y/y.  The July US core final-demand PPI report of +0.9% m/m and +3.7% y/y was substantially stronger than market expectations of +0.2% m/m and +3.0% y/y.

The markets dialed back expectations for Fed easing in the wake of today's disappointing PPI report.  The markets are no longer discounting any chance of a -50 bp rate cut at the September meeting and are now assigning a 90% chance of a -25 bp rate cut.  After Treasury Secretary Bessent's dovish comments on Wednesday, the markets temporarily assigned an 11% chance of a -50 bp rate cut at the September meeting.  Nevertheless, the current 90% chance of a -25 bp rate cut in September is still substantially more dovish than the 40% chance assigned before the news of the weak July payroll report on August 1 and the in-line CPI report this past Tuesday.

US weekly initial unemployment claims fell by -3,000 to 224,000, which was close to expectations for a slight decline to 225,000.  US weekly continuing claims fell by -15,000 to 1.953 million, which showed a slightly stronger labor market than expectations of a dip to 1.967 million.

San Francisco Fed President Mary Daly told the WSJ that she does not support a -50 bp rate cut at the September meeting, saying that "would send off an urgency signal that I don't feel about the strength of the labor market." Daly said she still supports two rate cuts this year, but that three cuts could be warranted "if we saw more signs that the labor market was more precarious."

St Louis Fed President Alberto Musalem said that a -50 bp rate cut at the September meeting would be "unsupported by the current state of the economy and the outlook for the economy" in his view.  He said it is too early for him to make a decision on a rate cut at the September meeting.

Treasury Secretary Scott Bessent today tried to backtrack a bit on his statements on Wednesday in which he said interest rates are "too constrictive" and that rates "should probably be 150, 175 basis points lower." He added, "There's a very good chance of a 50 basis point cut.  We could go into a series of rate cuts here, starting with a 50 basis point rate cut in September." 

In an interview with Fox Business today, Mr. Bessent said he was not telling the Fed what to do and that he was not calling for a series of Fed rate cuts with his comments on Wednesday.  He said he was merely trying to say that models show the neutral rate is lower, although he didn't specify which models he was referring to.  Mr. Bessent said he supports transparency and the call to clean up investment conflicts among members of Congress.

In recent tariff news, President Trump early Tuesday extended the tariff truce with China for another 90 days until November.  Last Wednesday, Mr. 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, Mr. 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 during the remainder of this week is on any tariff-trade news and Friday's Trump-Putin summit.  On Friday, July US retail sales are expected to climb +0.6% m/m and retail sales ex-autos are expected to rise +0.3% m/m.  Also on Friday, the July industrial production and manufacturing production reports are both 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 90% at the September 16-17 FOMC meeting and at 51% for a second -25 bp rate cut 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 are mixed.  The Euro Stoxx 50 is up +0.82%.  China's Shanghai Composite posted a 3.75-year high but then fell back and closed down -0.46%.  Japan's Nikkei Stock 225 closed down -1.45% and fell back from Wednesday's record high.

Interest Rates

September 10-year T-notes (ZNU25) are down by -9.5 ticks, and the 10-year T-note yield is up +4.6 bp at 4.279%.  T-note prices fell back today on the strong PPI report, which resulted in reduced expectations for Fed rate cuts in the coming months.  T-note prices were also undercut after Treasury Secretary Bessent today backtracked a bit on his comments yesterday, in which he called for aggressive Fed interest rate cuts.  In a bearish factor, the 10-year breakeven inflation expectations rate today is up by +1.0 bp at 2.386%.

European government bond yields are higher.  The 10-year German bund yield is up +2.6 bp at 2.706%.  The 10-year UK gilt yield is up +4.3 bp at 4.633%.

Swaps are discounting the chances at 7% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

The Magnificent Seven are mixed, with Amazon (AMZN) being the biggest gainer (+1.7%) and Tesla (TSLA) being the largest loser (-2.2%).

Chip stocks are trading mostly lower today, giving back some of yesterday's gains.   Microchip Technology (MCHP), ON Semiconductors (ON), Advanced Micro Devices (AMD), Marvell (MRVL), and Align Technologies (ALGN) are all down more than -2% today.

Bitcoin (^BTCUSD) is down -3.7% today, dragging crypto stocks lower.  Strategy (MSTR) is down more than -5%.  MARA Holdings (MARA) and Bit Digital (BTBT) are down more than -4%.  Coinbase (COIN) is down more than -2%. 

Cisco Systems (CSCO) is down more than -1% due to cautious management guidance for the current fiscal year.

Deere (DE) is down more than -7% on slightly lower management guidance for full-year net income as lower grain prices and tariff uncertainty are causing some farmers to pull back on equipment purchases.

Dow Inc (DOW) is up nearly +1% on a rating hike to neutral from underperform from BofA Global Research due to its view that the stock is oversold.

NetEase (NTES) is down nearly -2% after a miss on Q2 sales and weaker-than-expected growth in its core gaming segment.

CVS Health (CVS) is up nearly +1% on an upgrade from Baird to outperform from neutral due to "growing confidence" in the company's turnaround.

Earnings Reports (8/14/2025)

Deere & Co (DE), Amcor PLC (AMCR), Tapestry Inc (TPR), Applied Industrial Technologie (AIT), Birkenstock Holding Plc (BIRK), QXO Inc (QXO), Applied Materials Inc (AMAT), Sandisk Corp/DE (SNDK), Globant SA (GLOB), NU Holdings Ltd/Cayman Islands (NU).