U.S. Stocks Climb on Softer Producer Prices, Boosting Rate Cut Expectations

U.S. stocks reached a near two-week high on Tuesday, driven by softer producer price data that strengthened investor expectations for an interest rate cut by the Federal Reserve in September. The market’s optimism was bolstered by gains in megacap and growth stocks, particularly in the technology sector.

At 16:55 GMT, the Dow Jones Industrial Average is trading 39721.60, up 364.59 or +0.93%. The S&P 500 Index is at 5423.97, up 79.58 or 1.49% and the Nasdaq is trading 17149.89, up 369.28 or +2.20%.

Technology and Semiconductors Lead Gains

Daily NVIDIA Corporation

Nvidia led the charge for the second consecutive session, with shares rising over 5%. The Philadelphia SE Semiconductor Index also surged 2.8%, reaching a near two-week high. This rally was largely attributed to the lower-than-expected increase in U.S. producer prices in July, which signaled continued moderation in inflation. The Producer Price Index (PPI) rose by 2.2% year-over-year, down from 2.7% in June, easing fears of persistent inflation pressures.

The technology sector’s strong performance reflected a shift in investor confidence after a volatile period marked by economic uncertainty. Growth stocks and semiconductors were the primary beneficiaries of this renewed optimism.

Dollar and Treasury Yields Decline

Following the release of the PPI data, the U.S. dollar and Treasury yields declined, as traders increased their bets on a 50-basis-point rate cut by the Federal Reserve. According to CME’s FedWatch Tool, the probability of such a cut rose to 55%, up from less than 50% before the report. Investors are now keenly awaiting Wednesday’s Consumer Price Index (CPI) figures and Thursday’s retail sales data for further confirmation of the Fed’s potential move.

Sector Performance and Corporate News

The broader market saw gains across most sectors, with nine of the 11 major S&P sectors trading higher. Information technology and communication services led the advance, while energy shares dipped amid lower oil prices. OPEC’s revision of its 2024 demand growth forecast added to concerns about supply risks in the Middle East.

Daily Starbucks

In corporate news, Starbucks soared 20.5%, poised for its largest one-day gain ever, following the appointment of Brian Niccol as chairman and CEO. In contrast, Chipotle fell 9.6%. Home Depot rebounded, climbing nearly 1% despite a forecasted decline in annual profit.

Market Outlook

Looking ahead, U.S. stocks are expected to remain volatile as traders digest upcoming economic data and comments from Federal Reserve officials. If inflation data continues to show signs of moderation, the likelihood of a significant rate cut in September will increase, potentially fueling further gains in growth and technology stocks. However, any signs of persistent inflation or economic slowdown could temper this optimism. As Chris Beauchamp, chief market analyst at IG, observed, “It feels like ‘back to normal’ for markets as tech stocks lead the way higher again following the lower U.S. PPI data.”

Technical Analysis

Daily E-mini Nasdaq-100 Index

E-mini Nasdaq-100 Index futures are rising sharply on Tuesday after decisively breaking above a key short-term level of 18,534. This level now serves as new support and is likely to influence the market’s direction in the near future.

The index is showing strong upward momentum, which suggests it may soon test the 50-day moving average at 19,623.50 with little resistance.

The 200-day moving average at 18,253.50 represents a significant support level.