July CPI Report Ignites a Risk-On Rally: Stock Market Today
Market participants price out worst-case scenarios for tariffs and inflation and will now turn their attention to employment and growth.
All three major U.S. equity indexes gapped up at the open and climbed through Tuesday's trading session after the government said inflation wasn't as hot as expected in July. All 11 sectors were higher amid a broad rally also fueled by another extension of President Donald Trump's deadline for an agreement with China on tariffs.
Communication services, technology and financials led the way higher, with utilities and real estate turning from red to green late in the session. President Trump has extended by 90 days (until November 10) a deadline to reach a new trade agreement with China. And earnings news continues to be generally positive.
But today was all about incoming economic data and the July CPI report. The Bureau of Labor Statistics said the Consumer Price Index increased by 0.2% month-over-month and 2.7% year-over-year in July, a little less hot than Wall Street expected and sufficient to spark 1%-plus gains for all three of the major indexes.
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BlackRock Chief Investment Officer of Global Fixed Income Rick Rieder notes underlying strength in July CPI numbers but remains "heartened by the trajectory" of some core inflation areas running at lower levels compared to the recent past.
"These pieces of data are critical for a Federal Reserve that appears to be in a more immediate transition to a lower fed funds policy rate," Rieder writes. "We expect the Fed to begin cutting rates in September, and it could be justified cutting the funds rate by 50 basis points."
Indeed, the CME Group's FedWatch Tool now shows a 94.2% probability the Fed will cut interest rates by 25 basis points following the September 16-17 FOMC meeting. But that's not 100%.
And, according to Comerica Bank Chief Economist Bill Adams, "The Fed will likely see the July CPI report as a pebble on the scales against a rate cut in September." Adams emphasizes "hot" increases in core services prices, which the Fed "believes … are a better metric of inflation's trend than goods prices."
Adams concedes "tariffs have had limited effects on inflation so far" but notes the "up one day, down the next, then up even more the day after" means it's too early to assess the ultimate impact on prices.
"The CPI report is an argument against a cut in September," Adams concludes. The economist expects the Fed to maintain a target range of 4.25% to 4.50% for the federal funds rate, "but it's a close call. Another downside surprise from jobs data could easily tip the Fed's balance of opinion toward a cut."
Fed funds futures pricing currently shows a 0.0% probability of a 50-basis-point move in September. Next up on the economic calendar are a couple of Fed speakers on Wednesday as well as the Producer Price Index (PPI) for July and weekly jobless claims on Thursday.
But the most important numbers, as Adams acknowledges, won't come until the BLS releases the August jobs report on Friday, September 5.
Make the nuclear revolution
Oklo (OKLO, +9.2%), one way to invest in the nuclear revolution, reported a second-quarter loss of 18 cents per share, an improvement from a loss of 27 cents a year ago but worse than a consensus forecast for a loss of 11 cents.
In its earnings announcement, Oklo noted it's "uniquely positioned to benefit" from the Trump administration's executive orders on nuclear energy. The Financial Times reports that multiple special purpose acquisition companies (SPACs) are angling for some federally stimulated fission-and-fusion-reaction action as well.
According to the FT: "Three nuclear energy developers are seeking to raise more than $500 million through mergers with special purpose acquisition companies as investors rush to tap into an atomic energy boom."
Jamie Smyth and George Steer report that Terra Innovatum, Terrestrial Energy and Eagle Energy Metals expect to complete transactions designed to "accelerate the development of small modular reactors" by the end of 2025.
IPOs are hot
The FT also reports that Holtec International and Quantum Leap Energy, a unit of ASP Isotopes, are among several development-stage nuclear companies with plans for an initial public offering (IPO) in the near future amid a welcoming market environment.
CoreWeave (CRWV, +6.4%), which completed its IPO March 28, extended an already impressive performance ahead of its post-closing bell earnings report. CoreWeave beat expectations when it reported its first set of quarterly results in May.
According to FactSet, Wall Street expects the AI cloud platform to report a loss of 23 cents per share on revenue of $1.08 billion. CRWV stock is up 249.4% since its IPO.
Another recent IPO, Figma (FIG, +6.2%), is still soaring after its July 31 stock market debut, as many investors appear to be answering the question "should you buy FIG stock?" in the affirmative.
M&A is hot too
Meanwhile, old-school consumer discretionary stock Hanesbrands (HBI, +27.9%) jumped like it's the Michael Jordan days again on a separate FT report that Gildan Activewear (GIL, -3.6%) "is nearing a deal" to acquire the underwear-maker for $5 billion.
A deal among textile firms would bear at least historic resemblance to the tie-up between Union Pacific (UNP, -0.5%) and Norfolk Southern (NSC, -0.2%) announced July 29. That merger could potentially establish, at long last, a real transcontinental railroad.
Meanwhile, UNP's acquisition of NSC has also stirred talk of Warren Buffett making his own old-world M&A move through railroad company BNSF and deploying some of the cash on the Berkshire Hathaway (BRK.B, +1.3%) balance sheet to buy CSX (CSX, +1.7%).
By Tuesday's closing bell, the blue-chip Dow Jones Industrial Average had added 1.1% to 44,458. The tech-heavy Nasdaq Composite was up 1.4% to 21,681, and the broad-based S&P 500 Index had risen 1.1% to 6,445.
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