(Bloomberg) — Stocks lost steam after a recent rally, with an in-line US inflation report doing little to alter bets on the Federal Reserve outlook.
Most Read from Bloomberg
The S&P 500 fell, led by losses in the world’s largest technology companies — which had powered the recent rebound in equities. Treasury yields edged down. Swap markets continued to price in a first Fed move in September. The dollar headed toward its lowest since March.
The report reinforced the recent trend of disinflation – albeit at a moderate pace – and brought a relative sense of calm to markets still reeling after last week’s meltdown. Combined with a softening job market, the Fed is widely expected to start lowering interest rates next month, while the size of the cut will likely be determined by more incoming data.
“It may not have been as cool as yesterday’s PPI, but today’s as-expected CPI likely will not rock the boat,” said Chris Larkin at E*Trade from Morgan Stanley. “Now the primary question is whether the Fed will cut rates by 25 or 50 basis points next month. If most of the data over the next five weeks points to a slowing economy, the Fed may cut more aggressively.”
At Evercore, Krishna Guha said the July CPI was not the perfect disinflation print some had hoped for, but it is consistent with a tame read on the Fed’s preferred inflation measure. In addition, the central bank has disavowed data-point dependence, and is looking at the wider outlook and balance of risks, with downside risks to employment dominating since the July employment report.
“This is now a labor data-first Fed, not an inflation data-first Fed, and the incoming labor data will determine how aggressively the Fed pulls forward rate cuts,” Guha noted.
The S&P 500 hovered near 5,420. A Bloomberg gauge of the “Magnificent Seven” megacaps dropped 1.3%. The Russell 2000 of smaller firms fell 0.7%. Treasury 10-year yields declined three basis points to 3.81%.
Wall Street’s Reaction to CPI:
CPI & PPI both came in at or slightly below expectations which should continue to fuel the fire for…
..
