Stocks Rally Ahead of CPI Report as Bond Yields Decline: Markets Wrap

• Inflation and Market Movement:Stocks rallied and bond yields fell as the latest U.S. inflation data reinforced expectations that the Federal Reserve might cut interest rates in September. The S&P 500 rose by 1.5%, led by gains in major technology companies, while the Nasdaq 100 climbed 2.2%, and the Russell 2000 increased by 1.3%. Treasuries gained across the curve, particularly in shorter maturities, and the dollar weakened. The VIX, Wall Street’s favored volatility gauge, dropped to around 18.
• Producer Price Index (PPI) Impact:Just a day before the consumer inflation report, the producer price index (PPI) showed a smaller-than-expected increase, calming concerns about inflation. The PPI categories used to calculate the Fed’s preferred inflation measure, the personal consumption expenditures price index, were generally subdued, adding to speculation about the Fed’s potential rate cut.
• Corporate Moves and Highlights:
  • Starbucks Leadership Change: (SBUX) Starbucks surged 22% after announcing the replacement of its CEO with Chipotle’s Brian Niccol.
  • Home Depot: (HD) Lowered its forecast for a key sales metric, citing expectations of reduced consumer spending.
  • Boeing: (BA) Reported stable commercial aircraft deliveries, with July numbers matching those from the previous year.
  • Paramount Global: (PARA) Began laying off 15% of its U.S.-based workforce, amounting to about 2,000 positions.
  • General Motors: (GM) Is planning a major structural overhaul in China due to declining sales.
  • Baxter International: (BAX) Announced the sale of its kidney-care unit to the Carlyle Group for $3.8 billion to streamline operations and reduce debt.
  • Avon Products: Filed for bankruptcy amidst lawsuits alleging its talc products caused cancer.
  • Illumina Inc.: (ILMN) Failed to impress investors with its growth targets, despite plans to boost sales through improved DNA sequencing.
  • Kroger (KR) and Albertsons (ACI): Spent over $800 million on fees related to their proposed merger, highlighting the high costs of the largest-ever tie-up between U.S. grocery chains.
• Market Outlook:Treasury 10-year yields dropped to 3.85%, with swap traders pricing in a nearly 40 basis-point Fed cut in September and a potential total rate reduction of 105 basis points for 2024. Despite the disinflationary data, tech stocks outperformed small caps, with big tech leading the market gains. Oil prices, meanwhile, paused after a five-day surge.