The S&P 500 Index ($SPX) (SPY) on Thursday rose +0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) fell -0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) was unchanged. September E-mini S&P futures (ESU25) fell -0.08%, and September E-mini Nasdaq futures (NQU25) fell -0.24%.
Stocks recovered from modest early losses and closed narrowly mixed. Stocks saw downward pressure from Thursday's strong US PPI report and the +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 Thursday both threw cold water on the idea of a -50 bp rate cut at the September FOMC meeting. There continued to be uncertainty ahead of Friday's Trump-Putin summit, which will begin at 3:30 pm ET followed by a joint press conference, according to Politico.
Thursday'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 the 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 93% chance of a -25 bp rate cut. After Treasury Secretary Bessent's dovish suggestions on Wednesday, the markets temporarily assigned an 11% chance of a -50 bp rate cut at the September meeting. Nevertheless, the current 93% 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." She 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 on Thursday 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 Thursday, 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 93% at the September 16-17 FOMC meeting and at 53% 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 on Thursday closed mixed. The Euro Stoxx 50 closed up +0.86%. 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) on Thursday fell by -10.5 ticks, and the 10-year T-note yield rose +5.4 bp to 4.287%. T-note prices fell back 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 backtracked a bit on his comments Wednesday, in which he called for aggressive Fed interest rate cuts. In a bearish factor, the 10-year breakeven inflation expectations rate on Thursday rose by +2.1 bp to 2.396%.
European government bond yields rose. The 10-year German bund yield rose +3.2 bp to 2.712%. The 10-year UK gilt yield rose +5.1 bp to 4.641%.
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 closed mostly higher, with Amazon (AMZN) being the biggest gainer (+2.9%) and Tesla (TSLA) being the largest loser (-1.1%).
Chip stocks closed mixed, clawing back some early losses. Intel (INTL) rose by +7.4%, but Align Technologies (ALGN), Advanced Micro Devices (AMD), and GlobalFoundries (GFS) closed with losses of more than -1%.
Bitcoin (^BTCUSD) fell nearly -4%, dragging crypto stocks lower. Strategy (MSTR) fell -4.4%, while Coinbase (COIN) and MARA Holdings (MARA) both closed down about -0.7%. However, Riot Platforms (RIOT) bucked the trend and closed up +5.7%.
Cisco Systems (CSCO) closed down -1.5% due to cautious management guidance for the current fiscal year.
Deere (DE) fell -6.8% 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) rose +2% on a rating hike to neutral from underperform from BofA Global Research due to its view that the stock is oversold.
NetEase (NTES) fell nearly -4% after a miss on Q2 sales and weaker-than-expected growth in its core gaming segment.
CVS Health (CVS) rose +2.4% on an upgrade from Baird to outperform from neutral due to "growing confidence" in the company's turnaround.
Earnings Reports (8/15/2025)
Dillard's Inc (DDS), SailPoint Inc (SAIL), Flowers Foods Inc (FLO).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
