Stocks Settle Lower Ahead of Wednesday’s CPI Report

The S&P 500 Index ($SPX) (SPY) closed down -0.32% on Tuesday, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.34%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.33%.  September E-mini S&P futures (ESU26) fell -0.35%, and September E-mini Nasdaq futures (NQU26) fell -0.33%.

Stock indices settled lower on Tuesday.  The lack of a deal to reopen the Strait of Hormuz pushed crude oil prices higher, raised inflation expectations, and weighed on stocks.  Also, hawkish comments on Tuesday from Chicago Fed President Austan Goolsbee were bearish for stocks and bonds when he said "the biggest problem facing our economy right now" is inflation.

Losses in stocks were limited on Tuesday amid strength in chipmakers and AI-infrastructure stocks.  Also, expectations for a Fed-friendly CPI report on Wednesday knocked bond yields from a 1-week high of 4.73% to finish down -2 bp to 4.68%. The consensus is that July core CPI will ease to 3.4% y/y from 3.5% and core July CPI will ease to 2.5% y/y from 2.6% y/y.   

Tuesday’s US economic news was neutral for stocks after July existing home sales fell -1.7% m/m to 4.06 million, close to expectations of 4.05 million.

The outlook for strong Q2 earnings is a bullish factor for stocks. The S&P 500 is tracking for earnings growth of almost 32% in Q2, well above projections of +23%, and nearly four times the average earnings growth rate outside of the Covid period since Q4 of 2013, according to Bloomberg Intelligence.  AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2.  So far, earnings results have been positive, with 85% of the 446 S&P 500 companies that have reported Q2 earnings beating estimates, according to Bloomberg data. 

Sep WTI crude oil prices (CLU26) rose more than +1% to a 1-week high on Tuesday as President Trump hardened his stance toward Iran, making it unlikely there will soon be a deal to reopen the Strait of Hormuz.  In response to Iran’s demand for compensation for war damages, President Trump said he will “demand compensation from Iran for people killed and wounded with roadside bombs and many conflicts to people in Lebanon, Syria, Yemen and Gaza over the last 50 years.” 

Crude prices retreated briefly on Tuesday after Pakistan signaled the US and Iran were close to an arrangement that could reopen the Strait of Hormuz.  Pakistani defense minister Khawaja Asif said today that signals in the "last two to three days are that we are close to some sort of agreement." However, crude prices regained upward momentum Tuesday afternoon when Iran's state-owned Islamic Republic of Iran Broadcasting (IRIB) said the Strait of Hormuz would remain shut until all of its conditions are met.

On Sunday, Mr. Trump signaled he's prepared to let economic pressure on Iran build rather than launch additional military strikes, saying the US was only "semi-negotiating" with Iran on the Strait of Hormuz and that the US blockade of Iran was deepening the country's financial woes.

The risk of a renewed flare-up across the Middle East remains high, as another UAE tanker was targeted by a missile on Saturday while transiting the Strait of Hormuz.  Also, on Sunday, Houthi militants in Yemen claimed an attack on Saudi Arabia's Jazan refinery.

The markets are discounting a 51% chance of a +25 bp rate hike at the next FOMC meeting on September 15-16.

Overseas stock markets settled mixed on Tuesday.  The Euro Stoxx 50 rallied to a new all-time high and closed up +0.24%.  China's Shanghai Composite closed down -0.82%.  Japan's Nikkei-225 Stock Average did not trade, with Japanese markets closed for the Mountain Day holiday.

Interest Rates

September 10-year T-notes (ZNU6) closed up +3.5 ticks on Tuesday.  The 10-year T-note yield fell down -2.3 bp to 4.684%.  Sep T-notes rebounded from a 1-week low on Tuesday and moved higher, and the 10-year T-note yield fell from a 1-week high of 4.733% and turned lower.  Short covering emerged in T-notes on Tuesday in anticipation of a Fed-friendly July CPI report on Wednesday.  Also, solid demand for the Treasury’s$58 billion auction of 3-year T-notes was supportive for T-notes as the auction had a bid-to-cover ratio of 2.71, stronger than the 10-auction average of 2.64.

Gains in T-notes were limited on Tuesday after WTI crude oil rose more than +1% to a 1-week high, which boosted inflation expectations.  Also, hawkish comments from Chicago Fed President Austan Goolsbee were bearish for bonds when he said "the biggest problem facing our economy right now" is inflation.

European government bond yields moved lower on Tuesday.  The 10-year German bund yield fell from a 1-week high of 3.208% and finished down -2.0 bp to 3.158%.  The 10-year UK gilt yield fell from a 1-week high of 5.050% and finished down -2.4 bp to 4.964%.

Markets are discounting an 89% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.

US Stock Movers

Software stocks were under pressure on Tuesday.  Datadog (DDOG) closed down more than -5%, and Adobe Systems (ADBE) and Oracle (ORCL) closed down more than -3%.  Also, Autodesk (ADSK), Cadence Design Systems (CDNS), and Workday (WDAY) closed down more than -1%.  In addition, Microsoft (MSFT) closed down 0.62%.

Asset managers rallied on Tuesday after Nvidia tapped several firms for a $500 billion funding commitment. KKR & Co. (KKR) closed up more than +6% to lead gainers in the S&P 500.  Also, Apollo Global Management (APO) closed up more than +6%, and Blackstone (BX) closed up more than +3%.  In addition, Blackrock (BLK) closed up more than +1%.

Chipmakers and AI-infrastructure stocks are moving higher today, supporting the broader market.  KLA Corp (KLAC) closed up more than +4%, and ASML Holding NV (ASML) closed up more than +3%.  Also, Sandisk (SNDK) and Seagate Technology Holdings Plc (STX) closed up more than +2%, and Marvell Technology (MRVL), Advanced Micro Devices (AMD), NXP Semiconductors (NXPI), and Lam Research (LRCX) closed up more than +1%. 

ON Holding AG (ONON) closed down more than -20% after reporting weaker-than-expected Q2 net sales.  The weakness in ON Holding also knocked Nike (NKE) down by more than -1%.

Amentum Holdings (AMTM) closed down more than -8% after cutting its full-year revenue forecast to $13.80 billion to $13.95 billion from a previous forecast of $13.95 billion to $14.30 billion. 

Venture Global (VG) closed down more than -7% after reporting Q2 adjusted Ebitda of $2.49 billion, below the consensus of $2.51 billion. 

AppLovin (APP) closed down more than -5% to lead losers in the S&P 500 and Nasdaq 100 after Bank of America Global Research downgraded the stock to neutral from buy.

Rapid7 Inc. (RPD) closed up more than +15% after raising its full-year adjusted EPS forecast to $1.78 to $1.83 from a previous forecast of $1.52 to $1.60, stronger than the consensus of $1.56. 

Everpure (P) closed up more than +11% after announcing it had secured a design win and supply agreement with a second top five hyperscaler. 

Jabil (JBL) closed up more than +5% after UBS upgraded the stock to buy from neutral with a price target of $430. 

Riot Platforms (RIOT) closed up more than +4% after striking a 20-year $9.1 billion cloud deal with Anthropic to provide the company with 191 megawatts of computing power. 

Earnings Reports (8/12/2026)

Amcor PLC (AMCR), Cisco Systems Inc (CSCO), Coherent Corp (COHR), Performance Food Group Co (PFGC), Trimble Inc (TRMB).