Weekly Wrap

The equity market advanced modestly this week, buoyed by a combination of positive inflation data, resilient earnings, and continued rotation into smaller-cap and cyclical names. The S&P 500 rose 0.9%, the Nasdaq Composite gained 0.8%, and the DJIA outperformed with a 1.7% advance. Mid- and small-cap stocks led the way, with the S&P Mid Cap 400 climbing 1.6% and the Russell 2000 surging 3.1%, signaling renewed risk-on sentiment following the July CPI report.

The major averages also reached fresh record highs this week. The S&P 500 set both intraday and closing record intraday and closing highs at 6,481.34 and 6,468.54, respectively. The Nasdaq Composite similarly reached intraday and closing record highs of 21,803.75 and 21,713.14, respectively, while the DJIA briefly notched an all-time intraday high of 45,203.52. These milestones were achieved amid optimism around a potentially friendlier interest rate environment and solid earnings momentum.

The CPI data, largely in line with expectations, provided the initial spark for this week’s rally. Total CPI increased 0.2% month-over-month (Briefing.com consensus 0.2%), while core CPI, which excludes food and energy, rose 0.3% month-over-month (Briefing.com consensus 0.3%). These readings kept year-over-year headline inflation at 2.7% and core inflation at 3.1%, giving markets confidence in the likelihood of a 25-basis-point rate cut at the September FOMC meeting and fueling a rotation toward sectors and stocks poised to benefit from a friendlier interest rate environment.

The rotation was particularly evident in the small-cap Russell 2000 and homebuilder stocks, with the iShares U.S. Home Construction ETF posting a substantial 5.6% gain for the week. Consumer discretionary also saw notable momentum, up 2.5% WTD, reflecting optimism around lower borrowing costs and ongoing consumer demand. Health care continued to outperform, advancing 4.6% WTD, led by UnitedHealth and Eli Lilly, while communication services (+2.1%) and materials (+1.8%) also contributed positively.

Mega-cap technology and semiconductors saw more muted gains. The information technology sector was essentially flat (-0.1%), while the PHLX Semiconductor Index rose a modest 1.3%, as chipmakers balanced stronger AI-related demand with cautious outlooks for overseas markets. Energy (+0.5%), real estate (+0.2%), and financials (+1.2%) added incremental support, while defensive sectors like consumer staples (-0.8%) and utilities (-0.8%) lagged.

Midweek, the release of the July PPI report tempered some of the enthusiasm from the CPI-driven rally. The PPI for final demand jumped 0.9% month-over-month (Briefing.com consensus 0.2%), with the PPI less fodd and energy also rising 0.9% month-over-month, compared to an unchanged reading in June. These readings pushed year-over-year PPI growth to 3.3% (headline) and 3.7% (less food and energy), suggesting wholesale inflation pressures remain elevated. In response, markets modestly reduced expectations for the magnitude of the upcoming rate cut, with the CME FedWatch Tool showing the probability of a 25-basis-point cut at the September FOMC meeting declining slightly to 84.9% by Friday, down from 99.9% earlier in the week.

Fed speakers this week provided mixed signals, contributing to the nuanced market reaction:

Treasury Secretary Scott Bessent advocated for a 50-basis-point rate cut.

Chicago Fed President Austan Goolsbee (FOMC voting member) cautioned against overreacting to a single month of data, emphasizing the need to discern which price increases are transitory.

St. Louis Fed President Musalem (FOMC voting member) and San Francisco Fed President Daly (nonvoting member) noted that the PPI readings did not necessarily warrant a larger 50-basis-point cut, indicating a more measured approach would be considered at the September meeting.

U.S. Treasuries fluctuated modestly in response to the interplay of CPI and PPI data, with rate cut expectations still elevated but slightly moderated. Yields on the 2-year note were essentially unchanged for the week at 3.76%, while the 10-year note ended the week slightly higher at 4.33%.

Overall, this week showcased a market balancing optimism around potential rate cuts with caution over inflationary pressures and sector rotation. Small- and mid-cap stocks, along with homebuilders and health care, led the advance, while mega-cap technology lagged slightly, emphasizing a broader, risk-on environment that extended beyond the narrow mega-cap leadership seen in prior weeks.

• Russell 2000 + 3.1% for the week/ +2.5% YTD
• DJIA +1.7% for the week/ +5.7% YTD
• S&P Mid Cap 400 + 1.6% for the week/ + 1.7% YTD
• S&P 500 + 0.9% for the week/ +9.7% YTD
• Nasdaq Composite + 0.8% for the week / +12.0% YTD

Monday:

The stock market's early gains quickly propelled the Nasdaq Composite (-0.3%) to new all-time high levels, but a lack of conviction in the market saw the early gains negated, ultimately leading the major averages to finish with modest losses.

At its peak just after 12:00 PM ET, the Nasdaq Composite notched a record high level of 21,549.73. The S&P 500 (-0.3%) traded above its record closing high at the same time, but the gains did not hold throughout the afternoon. The DJIA (-0.5%) spent the vast majority of the session in negative territory.

While the noncommittal nature of today's trade is not surprising considering the market will receive July CPI data tomorrow, there was certainly no lack of headlines for the market to digest, despite an empty economic calendar. Tariff extensions, rate cut expectations, geopolitical summits, and semiconductor policy provided a multitude of talking points, though the markets were not swayed too far in any direction.

The market digested Vice Fed Chair Michelle Bowman's (FOMC voting member) Saturday comments in which she stated that three rate cuts could be appropriate this year, citing a recent softening in the labor market as a motivating factor. Later in the afternoon, Bloomberg reported that Bowman, Fed Vice Chair Phillip Jefferson, and Dallas Fed President Lorie Logan were added to the Trump administration's list of possible Fed Chair nominees, which also includes James Bullard, Marc Summerlin, Kevin Hasset, Christopher Waller, and Kevin Warsh.

Shares of NVIDIA (NVDA 182.15, -0.55, -0.30%) and Advanced Micro Devices (AMD 172.28, -0.48, -0.28%) traded lower before the open today, following a report from Financial Times that the companies will cede 15% of their AI chip sales in China to the U.S. government in exchange for export licenses.

Upside Q4 (Aug) EPS and revenue guidance from Micron (MU 123.76, +4.86, +4.09%), and headlines of a visit between President Trump and Intel (INTC 20.68, +0.73, +3.66%) CEO Lip-Bu Tan buoyed the PHLX Semiconductor Index as high as 1.5%, though the index ultimately closed with a loss of 0.1%

The information technology sector (-0.7%) spent time among the best-performing S&P 500 sectors today before finishing among the worst. Other laggards included the energy (-0.8%), real estate (-0.7%), and utilities (-0.4%) sectors.

Several S&P 500 sectors spent time oscillating between positive and negative territory before a late-session sell-off eroded sector strength and saw eight sectors close with losses. The selling activity led to the major averages closing near session lows.

Only the consumer staples (+0.2%), consumer discretionary (+0.1%), and health care (+0.1%) sectors finished with modest gains.

Stocks of all sizes retreated today. The Vanguard Mega Cap Growth ETF closed with a loss of 0.2%, with Tesla (TSLA 339.13, +9.48, +2.87%) preventing further losses following a CNBC report that the company submitted a formal license request to become an electricity provider in the U.K. Meanwhile, the S&P Mid Cap 400 finished with a loss of 0.4%, and the Russell 2000 slightly outperformed, closing on its flatline.

On the trade front, Treasury Secretary Bessent said in an interview with Nikkei that tariff rates may be subject to reduction for countries in which the U.S. sees a decreased trade deficit and that he expects trade issues to be largely sorted out by the end of October.

Separately, President Trump signed an executive order this afternoon extending the tariff truce with China for an additional 90 days.

The president is set to meet with Russian President Vladimir Putin in Alaska on Friday to discuss an end to the war in Ukraine. The Telegraph reported that Ukrainian President Volodymyr Zelenskyy told other European leaders he is not willing to concede any territory that is currently held by Ukraine, but territory that Russia currently occupies could be negotiated as part of a ceasefire deal.

Longer-dated Treasuries started the week on a modestly higher note, while the 2-year note lagged slightly, spending the session near its unchanged level. The 2-year note yield settled down one basis point to 3.75%, and the 10-year note yield also settled down one basis point to 4.27%.

Tuesday:

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%.

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.

Wednesday:

The S&P 500 (+0.3%) and Nasdaq Composite (+0.1%) opened to new all-time high levels, with yesterday's July CPI release providing enough momentum for the indices to close with modest gains and record closing highs, despite some profit taking throughout the day.

At its peak, the S&P 500 set a record intraday high of 6,480.28 and captured a record closing high of 6,466.58. The Nasdaq Composite set a record intraday high of 21,803.75 and notched a record closing high of 21,713.14.

Interest rate cut optimism was buoyed following comments from Treasury Secretary Scott Bessent on Fox Business last night advocating for a 50 basis-point rate cut, a stance he reiterated on Bloomberg TV this morning while adding that the Fed funds rate range should ultimately be reduced by at least 150 basis points.

The CME FedWatch Tool assigned a 99.9% probability of a 25 basis-point rate cut at the September FOMC meeting in the late morning, though this would later be reduced to 97.9% after Chicago Fed President Austan Goolsbee (FOMC voting member) stated that he is not committed to a September rate cut, citing concerns about an increase in services inflation.

Atlanta Fed President (FOMC nonvoting member) stated today that the central bank can wait to make policy adjustments because the labor market remains strong.

Nonetheless, the stock market largely advanced as a friendlier interest rate environment seems inevitable, though an underperformance in mega-cap names stymied growth in the S&P 500 and Nasdaq Composite, while the DJIA (+1.1%) outperformed with its mega-cap exposure limited to just Microsoft (MSFT 520.58, -8.66, -1.64%).

The Vanguard Mega Cap Growth ETF finished with just a 0.1% gain, while the Russell 2000 (+2.0%) continued its rally this week, and the S&P 500 Equal Weighted Index (+1.3%) decidedly outperformed the market-weighted S&P 500 (+0.3%).

Mega-cap underperformance contributed to modest losses in the communication services (-0.5%) and information technology (-0.2%) sectors, while the defensive consumer staples sector (-0.4%) also closed in negative territory.

The other eight S&P 500 sectors finished above their baselines, with the materials (+1.7%), health care (+1.6%) consumer discretionary (+1.3%) and energy (+1.2%) sectors capturing gains wider than 1.0%.

The consumer discretionary sector reaped the benefits of the expected friendlier interest rate environment, seeing notable gains in its homebuilder components that pushed the iShares U.S. Home Construction ETF (+4.5%) to a substantial gain.

Elsewhere, the health care sector saw considerable strength in its biotechnology names and strong leadership in top names such as Eli Lilly (LLY 660.70, +21.27, +3.33%) and UnitedHealth (UNH 271.84, +10.28, +3.93%).

Investors are continuing this week's trend of bargain hunting in the worst-performing S&P 500 sector this year, which, in conjunction with a retreat in several mega-cap names and continued small-cap outperformance, may signal a rotation in the market towards overlooked names that could benefit from looser monetary conditions.

U.S. Treasuries recorded solid gains on Wednesday in response to rising rate cut expectations, sending the 2-year note yield toward its August low (3.653%) while yields slipped to fresh lows for the week. The 2-year note yield settled down four basis points to 3.69%, and the 10-year note yield settled down six basis points to 4.24%.

Reviewing today's data:

• The weekly MBA Mortgage Index jumped to 10.9% follwoing last week's 3.1% increase. The Refinance Index jumped 23.0% while the Purchase Index was up 1.4%.

Thursday:

The stock market opened to broad-based retreats following the July PPI report (up 0.9% month-over-month; Briefing.com consensus 0.2%), though the market's reaction was muted in comparison to Tuesday's advance that followed a friendlier CPI report for July (up 0.2%; Briefing.com consensus 0.2%), with the major averages ultimately finishing on their flatlines.

While the S&P 500 spent the majority of the session in negative territory, a slight gain of 0.03% saw the index capture a new record high of 6,468.54.

Tuesday's CPI report boosted the probability of a 25 basis-point September rate cut to 99.9%. Today's data lessened that probability to 92.6%, according to the CME FedWatch tool.

While a September rate cut is still highly likely, the July PPI report threw a serious wrench into recent arguments for a 50 basis-point cut. St. Louis Fed President Musalem (FOMC voter) and San Francisco Fed President Daly (non-voter) both stated today that the current data does not reflect the need for a 50 basis-point cut, with Musalem remarking that he will go into the September meeting with an open mind.

Losses were especially broad-based in the early going, with all eleven S&P 500 sectors opening in negative territory, though the market would finish much improved from session lows.

The communication services (+0.4%) sector benefitted from modest gains in its mega-cap constituents, Meta Platforms (META 782.13, +2.05, +0.26%) and Alphabet (GOOG 203.82, +0.79, +0.39%), while a strong performance in Amazon (AMZN 230.98, +6.42, +2.86%) propped up an otherwise weak consumer discretionary sector (+0.5%).

Investors continued to do some bargain hunting in the health care sector (+0.5%), and the financials sector (+0.6%) also notched a nice gain, rounding out the four S&P 500 sectors that advanced today. The information technology sector finished flat.

The other six sectors would see losses that ranged from 0.2% to 0.9%, as breadth figures denoted broad-based selling activity, with decliners outpacing advancers by a nearly 3-to-1 margin on the NYSE and a greater than 2-to-1 ratio on the Nasdaq.

Despite the broad-based retreat, a rotation back into several mega-cap names kept the losses modest. The Vanguard Mega Cap Growth ETF advanced 0.3% today, and the market-weighted S&P 500 (flat) noticeably outperformed the S&P 500 Equal Weighted Index (-0.6%).

Meanwhile, the Russell 2000 (-1.2%) and S&P Mid Cap 400 (-1.2%) gave back a good chunk of their advances from earlier in the week, with rising market rates and a re-think of the policy outlook tempering some of the rotational excitement that followed the CPI report

U.S. Treasuries retreated on Thursday, sending yields from their lowest levels of the week back toward highs from Tuesday. The 2-year note yield settled up five basis points at 3.74%, and the 10-year note yield settled up six basis points at 4.29%.

Reviewing today's data:

• The index for final demand jumped 0.9% month-over-month in July (Briefing.com consensus: 0.2%) following an unchanged reading in June. The index for final demand, excluding food and energy, also increased 0.9% month-over-month (Briefing.com consensus: 0.2%) following an unchanged reading in June. With these readings, the index for final demand is up 3.3% year-over-year, versus 2.4% in June, while the index for final demand, excluding food and energy, is up 3.7%, versus 2.6% in June.
  
  • The key takeaway from the report, other than that it completely flies in the face of the relatively friendly CPI report, is that wholesale prices rose appreciably across all stages of production and for both goods and services. The concern will be that this inflation will register in the PCE Price Index and keep the Fed from being as aggressive with its rate cut approach as had been envisioned following the CPI data.
• Initial jobless claims for the week ending August 9 decreased by 3,000 to 224,000 (Briefing.com consensus: 228,000), while continuing jobless claims for the week ending August 2 decreased by 15,000 to 1.953 million.
  
  • The key takeaway from the report is still the same. Layoffs are low, but finding a new job, if laid off, is taking longer. Weekly natural gas inventories increased by 56 bcf after increasing by 7 bcf a week ago.

Friday:

The DJIA (+0.1%) and S&P 500 (-0.3%) notched record highs today despite relative weakness across the stock market, which saw the major averages finish mixed for the day.

At its peak, the DJIA set a new all-time high of 45,203.52, though its modest gain was not enough to carry it to a record closing high. The S&P 500 captured a new record high of 6,481.34 today during a brief early stint in positive territory.

The DJIA's advance was underpinned by a strong rally in UnitedHealth (UNH 304.16, +32.67, +12.03%), which traded higher after it was reported that Berkshire Hathaway (BRK.B 477.20, -1.86, -0.4%) purchased over 5 million shares in UNH last quarter, worth around $1.6 billion.

The move helped a hot health care sector (+1.7%) finish as both the top-performing S&P 500 sector today and this week, with a week-to-date gain of 4.6%.

The communication services sector (+0.5%) also captured a nice gain due to strong leadership in Alphabet (GOOG 204.91, +1.09, +0.53%) and Meta Platforms (META 785.23, +3.10, +0.40%) amid an otherwise lackluster day for mega-cap names. 

Elsewhere, the real estate (+0.7%) and consumer staples (+0.1%) sectors round out the four S&P 500 sectors that finished in positive territory, with the materials sector finishing flat. 

The information technology sector (-0.8%) faced pressure out of the gate today, with its losses keeping the S&P 500 and Nasdaq Composite (-0.4%) under their flatlines for the majority of the session.

The sector saw weakness in its chipmaker names following disappointing guidance from Applied Materials (AMAT 161.76, -26.48, -14.07%), despite a beat on EPS and revenues. 

NVIDIA (NVDA 180.44, -1.58, -0.87%), among others, contributed to a 2.2% loss in the PHLX Semiconductor Index.

Weakness in large tech names saw the Vanguard Mega Cap Growth ETF finish with a loss of 0.4%, though the Russell 2000 (-0.6%) and S&P Mid Cap 400 (-0.6%) faced similar retreats. 

Though today's slide was modest, it was relatively broad-based. Decliners outpaced advancers by a nearly 3-to-2 margin on the NYSE Nasdaq, and six S&P 500 sectors finished with a loss.

Lingering inflation concerns have slightly eroded expectations for a 25 basis point rate cut at the September FOMC meeting, with the CME FedWatch tool now assigning an 84.9% probability, down from 92.1% the day before. While the drop is modest, it also dampens the odds of additional cuts later in the year.

Today's release of the July Import and Export Price Indexes sent some mixed signals, as the 0.4% increase in import prices clouds the inflation outlook in the sense that it is keeping the market guessing as to whether tariff inflation is going to ramp up in coming months or if this is just a one-time bump in the road.

In a CNBC interview, Chicago Fed President Austan Goolsbee (a voting FOMC member) noted that inflation readings have been mixed. He cautioned against overreacting to a single month's data, emphasizing the need to discern which price increases can be disregarded.

U.S. Treasuries ended Friday with losses across the curve, as the 2-year note returned to unchanged for the week while longer tenors extended this week's losses. The 2-year note yield settled up two basis points to 3.76% (unchanged this week), and the 10-year note yield settled up four basis points to 4.33% (+4 basis points this week). 

• Nasdaq Composite: +12.0% YTD
• S&P 500: +9.7% YTD
• DJIA: +5.7% YTD
• Russell 2000: +2.5% YTD
• S&P Mid Cap 400: +1.7 YTD

Reviewing today's data:

• July Retail Sales 0.5% (Briefing.com consensus 0.5%); Prior was revised to 0.9% from 0.6%, July Retail Sales ex-auto 0.3% (Briefing.com consensus 0.3%); Prior was revised to 0.8% from 0.5%
  • The key takeaway from the report, which isn't adjusted for inflation, is that it reflects a decent pace of consumer spending that isn't owed entirely to price increases; however, it does reveal a few points of spending caution, evidenced by the 0.6% decline in electronics and appliance stores, the 1.0% decline in building material and garden equipment and supplies dealers, and the 0.4% decline in food services and drinking places.
• August Empire State Manufacturing 11.9 (Briefing.com consensus 0.0); Prior 5.5
• July Import Prices 0.4%; Prior was revised to -0.1% from 0.1%
• July Import Prices ex-oil 0.3%; Prior was revised to -0.3% from 0.1%
• July Export Prices 0.1%; Prior 0.5%
• July Export Prices ex-ag. 0.1%; Prior 0.5%
• July Industrial Production -0.1% (Briefing.com consensus -0.1%); Prior was revised to 0.4% from 0.3%, July Capacity Utilization 77.5% (Briefing.com consensus 77.5%); Prior was revised to 77.7% from 77.6%
  • The key takeaway from the report is that industrial production activity was muted in July, with manufacturing output stalling due to output declining in all nondurable categories.
• June Business Inventories 0.2% (Briefing.com consensus 0.1%); Prior 0.0%
• August Univ. of Michigan Consumer Sentiment - Prelim 58.6 (Briefing.com consensus 61.3); Prior 61.7
  • The key takeaway from the report is that it marked the first downturn in consumer sentiment in four months, driven by rising worries about inflation.