Wall Street experienced a surge in bullish sentiment on Tuesday, fueled by lower-than-expected producer inflation data. This data solidified expectations for Federal Reserve interest rate cuts, prompting investors to increase their bets on a more significant 50-basis-point move.
The Producer Price Index (PPI), which measures inflation at the wholesale level, edged higher by only 0.1% from the previous month. This fell short of the anticipated 0.2% increase and marked a 2.2% rise year-over-year, down from the previous 2.7% print.
Traders reacted swiftly, adjusting their bets on a September rate cut. The probability of a larger 50-basis-point cut now stands at 55%, while a smaller 25-basis-point reduction has a 45% chance. This shift in sentiment drove major US indices upward. The S&P 500 rose 1.1%, the Nasdaq climbed 1.8%, and the Dow Jones gained 250 points or 0.6% by midday trading in New York.
Treasury yields fell across all maturities, reflecting the market’s anticipation of lower interest rates. The rate-sensitive two-year yield declined by 6 basis points. The U.S. dollar index also lost ground against other major currencies, falling 0.3% against the Japanese yen.
Commodities took a breather after strong gains on Monday, driven by escalating geopolitical risks in the Middle East. Oil prices retreated by 1.8%, pulling energy stocks lower. Gold remained steady, hovering just under 1% below its record highs. Bitcoin, on the other hand, rose 0.6%, extending its gains for a second consecutive session.
The positive sentiment was reflected in the performance of major US indices and exchange-traded funds (ETFs). The SPDR S&P 500 ETF Trust (SPY) rose 1.1% to $539.43. The SPDR Dow Jones Industrial Average (DIA) was trading 0.7% higher to $396.47. The tech-heavy Invesco QQQ Trust Series (QQQ) rallied 1.9% to $460.05.
However, the iShares Russell 2000 ETF (IWM) tumbled 1.1% to $206.85. The Technology Select Sector SPDR Fund (XLK) outperformed, up by 2.5%, while the Energy Select Sector SPDR Fund (XLE) lagged, down by 0.9%.
Among notable stock movers on Monday, Starbucks Corp. (SBUX) skyrocketed over 20% following the announcement that Brian Niccol will take the helm as the company’s new CEO. This marked the strongest one-day surge since the coffee-chain giant went public in 1993. Shares of Chipotle Mexican Grill Inc. (CMG), from which Niccol departed, plummeted over 9%. The company appointed former chief operating officer Scott Boatwright as interim CEO.
Home Depot, Inc. (HD) rose over 2% after reporting stronger-than-expected revenue and profits last quarter. Other stocks reacting to company earnings reports included On Holding AG (ONON), up 7.4%, Loar Holdings Inc. (LOAR), up 15.4%, Pacs Group Inc. (PACS), up nearly 16%, Dyne Therapeutics Inc. (DYN), down 0.2%, and Talen Energy Corp. (TLN), up 6.7%.
Companies slated to report after the close include Nu Holdings Ltd. (NU) and XP Inc. (XP).
