Joey Solitro
Stocks were choppy Wednesday even as the latest inflation data all but solidified expectations the Federal Reserve will start cutting interest rates at its next meeting in September. The main question now is how large that rate cut will be.
According to CME Group's FedWatch Tool, futures traders are pricing in a 65% chance the central bank will lower the federal funds rate by a quarter-percentage point next month, up from yesterday's 47% probability. The odds of a 50 basis-point cut (0.50%) fell to 35% from Tuesday's 53%.
The revised outlooks follow this morning's release of the Consumer Price Index (CPI), which increased 0.2% in July vs the prior month. Year-over-year, headline CPI was up 2.9%, the smallest annual increase since early 2021.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Core CPI, which excludes volatile food and energy prices, was up 0.2% month-over-month and 3.2% year-over-year in July – also the slowest pace of annual growth in three years.
"Market participants are confounded following this morning's CPI report, which produced a morning reversal in equities and fixed income after yesterday's strong gains," says José Torres, senior economist at Interactive Brokers. "On the one hand, inflationary pressures are well contained near 3%, but on the other, shelter costs accelerated fiercely due to lighter mortgage rates and an underbuilt housing market."
As a result, the Nasdaq Composite pared most of an early lead to end the day up just 0.03% at 17,192. Meanwhile, the S&P 500 (+0.4% at 5,455) and the Dow Jones Industrial Average (+0.6% at 40,008) finished with more notable gains.
Kellanova stock pops on $36 billion buyout buzz
In single-stock news, Kellanova (K) shares jumped 7.8% after Mars confirmed it will buy the Pringles parent in an all-cash deal valued at nearly $36 billion, including debt. The bid from the privately held candy and pet food maker works out to $83.50 per Kellanova share, or a 12% premium to last night's close.
The deal "speaks to Mars' snacking ambitions," says Jefferies analyst Rob Dickerson, who has a Hold rating on Kellanova. "Mars has stated previously that doubling its snacking business is a goal over the next decade. By our math, a K acquisition would increase Mars' global and U.S. snacking businesses by roughly 40% and 60%, respectively."
Alphabet drops on more DOJ woes
Elsewhere, Alphabet (GOOGL) fell 2.3% after a Bloomberg report indicated the Justice Department is considering breaking up the company's Google division. This follows last week's court ruling that found Google has illegally maintained a monopoly in search and text advertising.
While any process of splitting up Google faces a long road in the legal system, Needham analyst Laura Martin (Buy) supports the move. "We believe that GOOGL is worth more in pieces than together, so we welcome regulators' attempts to break up GOOGL," she writes in a note to clients.
Southwest gears up for proxy fight
Meanwhile, Southwest Airlines (LUV) stock slipped 0.2% after a report in The Wall Street Journal suggested activist investor Elliott Investment Management is readying a proxy battle with the discount airline. Elliott plans to call for a special meeting and nominate 10 directors to Southwest's 15-member board.
"Although Elliott is likely able to convene a special meeting of the LUV board of Directors, we are doubtful that the 10 proposed (still unconfirmed) board members would be supported by the current shareholder base," said Jefferies analyst Sheila Kahyaoglu (Underperform, the equivalent of Sell). The analyst doesn't believe investors will vote out current leadership with a "go-forward plan" in place.
Related content
- The Fed Is About to Cut Rates. What Should Investors Do?
- Brinker International Stock Sinks as Higher Costs Eat Into Earnings
- Earnings Calendar and Analysis for This Week
-
Stock Market Today: S&P 500, Nasdaq Hit New Highs on Retail Sales RevivalStrong consumer spending and solid earnings for AI chipmaker Taiwan Semiconductor Manufacturing boosted the broad market.
-
Higher Summer Costs: Tariffs Fuel Inflation in JuneTariffs Your summer holiday just got more expensive, and tariffs are partially to blame, economists say.
-
Stock Market Today: S&P 500, Nasdaq Hit New Highs on Retail Sales Revival
Strong consumer spending and solid earnings for AI chipmaker Taiwan Semiconductor Manufacturing boosted the broad market.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have TodayBerkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
New SALT Cap Deduction: Unlock Massive Tax Savings with Non-Grantor TrustsThe One Big Beautiful Bill Act's increase of the state and local tax (SALT) deduction cap creates an opportunity to use multiple non-grantor trusts to maximize deductions and enhance estate planning.
-
Know Your ABDs? A Beginner's Guide to Medicare BasicsMedicare is an alphabet soup — and the rules can be just as confusing as the terminology. Conquer the system with this beginner's guide to Parts A, B and D.
-
I'm an Investment Adviser: Why Playing Defense Can Win the Investing GameChasing large returns through gold and other alternative investments might be thrilling, but playing defensive 'small ball' with your investments can be a winning formula.
-
Stock Market Today: Powell Rumors Spark Volatile Day for StocksStocks sold off sharply intraday after multiple reports suggested President Trump is considering firing Fed Chair Jerome Powell.
-
Callable CDs Have High Rates: We Still Don't Recommend You Get ThemInvestors must carefully consider the trade-offs, as falling interest rates could lead to reinvestment at a lower yield and make selling on the secondary market difficult.
-
Five Big Beautiful Bill Changes and How Wealthy Retirees Can BenefitHere's how wealthy retirees can plan for the changes in the new tax legislation, including what it means for tax rates, the SALT cap, charitable giving, estate taxes and other deductions and credits.
