Stocks climb after PPI, Starbucks jumps 20%: Market recap

(Times of Update) — Stocks rose and bond yields fell after the latest U.S. inflation data reinforced speculation that the Federal Reserve will be able to roll out its much-anticipated interest rate cut in September.

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With just 24 hours to go until the consumer inflation report, data showed that the producer price index rose less than expected. The PPI categories used to calculate the Fed’s preferred measure of inflation — the personal consumption expenditures price index — were broadly subdued. The S&P 500 gained about 1%. Treasuries rose, driven by shorter maturities. The dollar fell.

“Markets seeking stability have again seen signs of slowing inflation,” said Chris Larkin of E*Trade at Morgan Stanley. “Today’s PPI could be the appetizer for tomorrow’s main course, CPI, but a weaker-than-expected reading will likely be welcomed by a stock market trying to rebound from its biggest decline of the year.”

The recent easing of price pressures has bolstered Fed policymakers’ confidence that they can begin to cut borrowing costs while shifting their focus back to the labor market, which is increasingly showing signs of slowing. Swaps markets have priced in about 40 basis points of Fed easing at the September meeting and a total rate cut of about 105 basis points for 2024.

For Ian Lyngen of BMO Capital Markets, nothing in Tuesday’s data suggests the Fed will hesitate to cut rates next month.

“That said, tomorrow’s consumer inflation update is much more relevant for near-term policy expectations,” he noted.

The S&P 500 index hovered around 5,400 points. The Nasdaq 100 climbed about 1.5%. The Russell 2000 of smaller companies gained 0.4%. Wall Street’s favorite volatility gauge, the VIX, fell below 20 points. Nvidia Corp. led gains among mega-caps. Starbucks Corp. jumped more than 20% after naming a new chief executive. Alphabet Inc. investors braced for a Google hardware event.

The yield on 10-year Treasury notes fell four basis points to 3.87%. Oil retreated after five days of gains as traders weighed concerns about the escalating conflict in the Middle East against the prospect of a potential surplus.

The producer price index for final demand rose 0.1% from a month earlier. The median forecast in a Times of Update survey of economists was for a 0.2% increase. Compared with a year ago, the PPI rose 2.2%. Excluding volatile food and energy categories, it was unchanged in July from a month earlier, the weakest reading in four months.

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“A muted PPI is a more positive reading,” said Paul Ashworth of Capital Economics. “It is nevertheless consistent with the Fed’s preferred measure of core PCE prices, which is rising at a below 2% annualized rate.”

Chris Zaccarelli of Independent Advisor Alliance said that if the CPI report comes in below expectations, as the PPI did, the Fed would have the “green light” to cut rates by 50 basis points at its next meeting.

“The path is clear for the Fed to reduce its rates…