Stock Market Update

[BRIEFING.COM] The S&P 500 (+1.1%) and Nasdaq Composite (+1.4%) reached fresh intraday and closing high levels following the release of the July CPI, which was largely in line with expectations and proved to be a catalyst for a definitively winning session. 

The S&P 500 reached a peak level of 6,446.55 before closing just below at 6,445.76. The Nasdaq Composite followed a similar trend, peaking at 21,689.68 and closing at 21,681.90. 

Total CPI increased 0.2% month-over-month, as expected, while core CPI, which excludes food and energy, rose 0.3%, also as expected. Those readings left CPI up 2.7% year-over-year, unchanged from June, and core CPI up 3.1% year-over-year versus 2.9% in June.

While there were some component indexes that exhibited tariff-induced inflationary pressures, the headline readings were better than feared and enough to at least temporarily quell inflation concerns.

The results of the readings further cement the strong probability of a 25 basis-point rate cut at the September FOMC meeting, with the CME FedWatch Tool showing a 94.4% probability of a September rate cut, up from 85.9% a day ago. Furthermore, there is now a 60.5% probability of a second 25 basis-point rate cut at the October meeting, with a 49.3% probability of a third cut in December. 

The idea of a friendlier interest rate environment was especially beneficial to smaller-cap stocks today. The market's risk-on mindset saw the Russell 2000 advance an impressive 3.0%, while the S&P Mid Cap 400 added 2.3%.

Large-cap and mega-cap stocks still advanced, just at a level that was more in line with the broader market. The S&P 500 Equal Weighted Index (+1.3%) slightly outperformed the market-weighted S&P 500 (+1.1%), with the Vanguard Mega Cap Growth ETF (+1.0%) posting a similar gain. 

Today's broad-based buying interest saw advancers outpace decliners by a nearly 22-to-5 ratio on the NYSE and a nearly 3-to-1 ratio on the Nasdaq. 

All eleven S&P 500 sectors finished in positive territory, with the communication services (+1.8%), information technology (+1.4%), financials (+1.2%), materials (+1.1%), and industrials (+1.1%) sectors closing with gains wider than 1.0%.

Though it was easy to find strength among nearly every cohort of stocks, airline companies and chipmakers were notably impressive today.

American Airlines (AAL 12.98, +1.40, +12.09%), Delta Air Lines (DAL 58.44, +4.94, +9.23%), and Southwest Air (LUV 30.72, +1.66, +5.73%) helped propel the Dow Jones Transportation Average to a 3.0% gain, while outside of the index, United Airlines (UAL 98.47, +9.14, +10.23%) and JetBlue Airways (JBLU 4.79, +0.52, +12.18%) also posted double-digit gains.

The PHLX Semiconductor Index also rose 3.0%, with companies such as NXP Semi (NXPI 220.05, +14.90, +7.26%), Microchip (MCHP 64.50, +3.55, +5.82%), and Intel (INTC 21.81, +1.16, +5.62%) making up for a subdued performance from NVIDIA (NVDA 183.16, +1.10, +0.60%). 

With no major news beyond the July CPI, the market maintained its early upward momentum, lifting the major averages throughout the session, while tomorrow's absence of significant economic data will test whether the rally can hold without fresh macro catalysts.

U.S. Treasuries finished Tuesday with losses in longer tenors while the front end outperformed after the release of in-line CPI and Core CPI for July. The 2-year note yield settled down two basis points to 3.73%, and the 10-year note yield settled up two basis points at 4.29%.

• Russell 2000: +2.9% WTD
• S&P Mid Cap 400: +1.9% WTD
• Nasdaq Composite: +1.1% WTD
• S&P 500: +0.9% WTD
• DJIA: +0.6% WTD

Reviewing today's data:

• Total CPI increased 0.2% month-over-month, as expected. Core CPI, which excludes food and energy, rose 0.3% month-over-month, also as expected. Those readings left CPI up 2.7% year-over-year, unchanged from June, and core CPI up 3.1% year-over-year, up from 2.9% in June.
  • The key takeaway from the report lurks in the details. The headline readings look good, yet there are enough component indexes exhibiting tariff-induced inflation pressures (i.e., large month-over-month changes) that one can't walk away with an "all-clear" inflation signal from this report. It seems doubtful that all Fed officials will, given the 3.1% year-over-year reading for core CPI.
• The Treasury Budget for July showed a deficit of $291.1 billion (Briefing.com consensus -$140.0 billion) compared to a deficit of $243.7 billion in the same period a year ago. The July deficit resulted from outlays ($629.6 billion) exceeding receipts ($338.5 billion). The Treasury Budget data are not seasonally adjusted so the July deficit cannot be compared to the June surplus of $27.0 billion.
  • The key takeaway from the report is that it showed a return to a deficit after a surprise surplus in June. Receipts from customs duties totaled $28 billion in July, increasing the year-to-date total to $136 billion.
• The NFIB Small Business Optimism Index rose to 100.3 in July from 98.6 in June.