Hot PPI Reading Tempers Rate Cut Hopes, But S&P 500 Still Closes at Record High

The stock market stumbled out of the gate on Thursday after the July Producer Price Index came in much hotter than expected, rising 0.9% month-over-month versus the 0.2% increase economists had forecast. The data contrasted sharply with Tuesday’s cooler CPI reading, which had fueled a sharp rally, but the sell-off that followed proved more restrained. By the close, the major averages had clawed their way back to finish essentially unchanged.

The S&P 500, which spent most of the session in the red, managed to eke out a 0.03% gain—just enough to notch a fresh record closing high at 6,468.54.

Tuesday’s CPI report had pushed market-implied odds of a September rate cut to near certainty, at 99.9%. Today’s hotter PPI print trimmed those odds to 92.6%, according to the CME FedWatch Tool, while largely dashing hopes for a more aggressive 50 basis-point move. St. Louis Fed President Alberto Musalem, a voting member of the FOMC, and San Francisco Fed President Mary Daly, a non-voter, both poured cold water on that notion, saying current data doesn’t warrant such a large cut. Musalem added that he will approach the September meeting with an “open mind.”

Losses were widespread at the open, with all 11 S&P 500 sectors starting in negative territory. However, the tone improved as the day went on. Communication services (+0.4%) drew support from modest gains in Meta Platforms and Alphabet, while Amazon’s 2.9% jump helped lift the consumer discretionary sector (+0.5%). Health care (+0.5%) and financials (+0.6%) also attracted some bargain hunters, rounding out the day’s gainers. Information technology ended flat, while the remaining six sectors posted losses ranging from 0.2% to 0.9%.

Despite the early wave of selling, a late-session rotation back into mega-cap names helped keep the damage in check. The Vanguard Mega Cap Growth ETF added 0.3%, with the market-weighted S&P 500 finishing flat and outperforming the S&P 500 Equal Weighted Index’s 0.6% drop.

Small- and mid-cap stocks didn’t fare as well, with both the Russell 2000 and S&P MidCap 400 falling 1.2%, giving back a sizable portion of the week’s earlier CPI-fueled gains. Rising market rates and a tempered outlook for policy easing seemed to sap some of the rotational momentum that had been building earlier in the week.

After several days of record-setting gains, our FTinvest 11 portfolio finally paused its rally, slipping back below the 850 mark. Still, the 840 level held firm, preventing deeper losses. By the close, the index was down 0.85% for the day, settling at 844.42.