PPI surprise fuels rally, rate-hike odds plunge, tech rotates and ‘Good’ earnings fall short

Well...Yesterday – the market put in another mostly strong rally as investors got exactly what they wanted—another inflation report that came in better than expected and you would think it took the pressure off of any rate hike possibility…. Well, you’d be correct – The CME Fedwatch is now projecting only a 17% chance of a September hike vs. the 47% chance yesterday morning. And that helped the mood yesterday but understand something – a hike is still on the table – it just got pushed out to January 2027.

The Dow rose 150 pts, the S&P up 29 pts, the Nasdaq rallied by 162 pts, the Russell up 11 pts, the Transports lost 128 pts the Equal Weight S&P lost 16 pts while the Mag 7 gained 810 pts or 2.3%!

Yesterday’s PPI - Producer Price Index followed Tuesday’s CPI and surprised to the downside, reinforcing the idea that inflation continues to cool.

The message was clear – while inflation isn’t disappearing, it isn’t accelerating the way many feared it would just a few weeks ago. Core PPI rose 4.7%, below the 5.1% expectation but a bit higher than the downwardly revised level last month – which came in at +4.6%.... suggesting that despite the headlines coming out of the Middle East, underlying inflation pressures continue to moderate.

Look, oil spent most of June collapsing—falling nearly $30 per barrel from its highs. That decline helped lower transportation costs, eased pressure on manufacturers, and provided a welcome tailwind for the broader economy, offsetting inflation elsewhere.

But that decline may prove to be only a temporary reprieve—not a permanent trend. Remember...oil has reversed course over the past week. The US has once again increased pressure on Iran after Tehran refused to negotiate in good faith, continued threatening commercial shipping, and effectively closed the Strait of Hormuz. As a result, crude is now trading near $80 per barrel—roughly $13 above its recent lows.

Here’s the important point...

Those higher energy prices are not reflected in the June CPI and PPI reports we just received. If oil remains at these levels—or moves even higher over the coming weeks—the inflation story could begin to change once again.

That doesn’t necessarily mean the Fed or the market has to panic – in fact we saw the chance of a September hike fade. History tells us that supply-shock inflation, like the one we are in right now, usually fades once supply normalizes. Demand-driven inflation, on the other hand, tends to be much more persistent because it’s fueled by a strong economy and robust consumer spending. Let’s be clear - while the economy is strong – it is not the reason for the spike in oil.

So, while the better-than-expected CPI and PPI reports are certainly welcome news, investors shouldn’t assume the inflation battle has been won. If the conflict drags on and energy prices continue climbing, yesterday’s encouraging inflation report may ultimately prove to be nothing more than a blip on the screen.

Yesterday also gave us the Fed’s Beige Book Survey which details the conditions across the country broken down into the 12 regions of the Fed Reserve. And what did it show? Slight-to-moderate growth, little change in employment, and – this is the tell – businesses openly citing BOTH the Iran conflict AND tariffs as cost pressures in the same breath.

OK – so back at Capitol Hill – the Humphrey Hawkings testimony continues - Kevy Warsh appeared in front of the Senate Banking committee to give them an update on the state of the economy and the mindset of the FED. He continues to make it clear that the FED remains an independent bank – saying that ‘they chose an independent guy to do an independent job’ – but he’s only one month into it – so let’s revisit that in the fall….

In any event – I like him and I like his style – and I discussed this yesterday with Liz Claman on the Claman Countdown on Fox Business. You can see that here.

So – where did the money go?

We saw money rotate into financials, consumer discretionary, consumer staples, communications and real estate.

And we saw money rotate out of Tech – the XLF took a hit – losing 1.1%, Semi’s got slammed falling 2.2%, Cybersecurity down 1.7%, while memory names got smashed – the DRAM etf lost 6.25%. We also saw weakness in utilities and energy.

AAPL – a name that they couldn’t throw out fast enough in June after they announced price hikes – sending that stock down 13% over 2 weeks – made a new all-time high yesterday after they received approval from China to roll out the iPhone with apple intelligence - although the version they approved will be modified a bit – the stock rose $12 to end the day at $327.50 and is now up 19% off that June low!

Earnings continue to separate the winners from the losers…

BLK beat expectations across the board, saw assets under management climb above $15 trillion, and investors rewarded the stock accordingly – ending up 6.6%.

BNY and MS also turned in strong reports, confirming that trading activity, wealth management, and capital markets remain healthy despite all the uncertainty. Those names ended higher – up 5.1% and 0.3% respectively.

On the other hand, ELV and JNJ reminded investors that “good” isn’t always good enough. JNJ topped both earnings and revenue estimates, delivered solid pharmaceutical growth, and even raised full-year guidance. Elevance Health also beat earnings and revenue expectations, reported better-than-expected medical costs, and increased its full-year outlook.

Under normal circumstances, those results would have been enough to send both stocks sharply higher. Instead, investors focused on what could go wrong next—questioning J&J’s MedTech growth and worrying about future Medicaid costs at Elevance.

As a result – both ended the day lower…. JNJ fell 2.67% while ELV lost 8.8%.

Earnings today include: UNH, GE, UBS, ABT, PLD & STT - These companies represent managed care, aerospace & defense, banking/wealth management, medical devices and Industrial REITs. UNH already reported and they crushed it – the stock is up $30 in the pre-mkt!

Overnight – TSM reported and crushed it…beat on revs, 68% margins, raised full yr guidance, will spend more on capacity expansion – raised capex by $8 billion and the stock is quoted down $16 in the pre-mkt.

Bonds caught a small bid again – the TLT up 0.2% and TLH up by 0.25%. As a result, yields moved a bit lower - The 2 yr is yielding 4.15% the 10 yr is at 4.57% while the 30 yr remains anchored at 5.10% - yields still remain in the ‘danger zone’ and that will surely keep a short-term lid on stocks….

Gold continues to bounce around between $4,000 and $4,200 (trendline resistance is really at $4,320) – This morning it is down $26 at $4,033.

Eco data includes – Advance Retail Sales - expected to come in at +0.2%, Ex gas and Autos of + 0.4%, Business Inventories of +0.3% and Pending Home Sales which are expected to be down 0.5% m/m.

European markets are lower…. down between 0.4% and 0.7%.

US futures are confused. Dow futures are up 100 pts, the S&P down 9 pts, the Nasdaq is down 166 pts, while the Russell is down 12 pts.

The S&P closed at 7572 up 28 pts. we’ve been stuck in the 7480/7580 tight range for 2 weeks….. Trendline support is at 7,454. The upside target would be the all-time high at 7,620. I think we continue to churn right here for now.

Caccio and Pepe con Fichi

This is a simple summer dish….it features fresh figs.

For this you need: pasta (use tonnarelli or bucatini), fresh figs, fresh grated pecorino, cold water and pepper, butter and olive oil.

Bring a pot of salted water to a rolling boil.

Slice the figs and sauté them in butter and olive oil. Set aside.

While the pasta is cooking – add the pecorino to a bowl. Hit it with pepper and cold water to make a paste.

When the pasta is done – add to the sauté pan with the figs. Now add the pecorino paste and some pasta water to loosen. Mix well and serve immediately. Top with the sauteed figs.