S&P 500 Index: Stock Market Drops as Oil Spike, Hot PPI Pressure Fed Outlook

PPI Comes in Hot and Stocks Take the Hit

The major U.S. stock indexes are down at the mid-session on Wednesday after a stronger-than-expected inflation report sent stocks lower ahead of the Federal Reserve’s rate decision later today at 18:00 GMT.

The blue chip Dow Jones Industrial Average is down 401 points, or 0.9%. The benchmark S&P 500 and tech-based Nasdaq each declined by 0.5%. A sharp increase in wholesale inflation combined with a spike in oil prices had traders selling ahead of the Fed announcement.

Shortly before the opening bell, the producer price index (PPI) came in at 0.7% for February, more than double the 0.3% that was expected. I think higher tariffs and rising material costs were the main drivers. That’s not a short-term bump, that’s inflation with some staying power.

The PPI report dropped at the worst possible time. Inflation was already running hot before the Middle East situation escalated. The way I see it, if producers are paying more, consumers are next. That keeps the higher-for-longer narrative alive heading into the Fed decision.

Oil Is Piling On

On top of the PPI number, oil is making things worse. U.S. crude jumped 3% to around $99 a barrel and Brent surged 5% to $109 after reports of fresh attacks on energy infrastructure in the Middle East. Traders are now pricing in the possibility of more supply disruptions.

Oil at these levels acts like a tax on everything. It pushes up transportation and production costs, slows growth and keeps inflation running hot. The word stagflation is starting to come up again and that’s not a word anyone wants to hear right now.

Energy Wins, Everything Else Struggles

Energy is the one bright spot at the mid-session. Oil prices are driving the gains and most everything else is under pressure. Industrials and manufacturers are getting hit by rising input costs. Tech is mixed. Micron is the name to watch today ahead of earnings. The chipmaker has had a strong run this year on the back of demand for advanced memory products.

The Market Is Hanging on Every Word from Powell

The Fed is expected to hold rates in the 3.5% to 3.75% range. Nobody is expecting a cut anytime soon. The way I see it, late 2026 is the earliest traders are pricing in any real easing. What matters today is what Powell says after the decision. If he sounds cautious about oil and inflation, stocks are going to feel it. If energy stays elevated and inflation doesn’t cool, rate cut expectations move further out and this market stays under pressure.

The 200-Day Is the Last Line of Defense

The S&P 500 Index daily chart confirms this fundamental outlook. The trend is down with the index hovering just below a key pivot area at 6705.42 to 6762.10.

More importantly, the index is solidly below the 50-day moving average at 6873.71 and is now in a position to challenge the 200-day moving average at 6615.92. A sustained move under this indicator will bring the long-term view into play and may even shift sentiment to the bearish side. But as long as the 200-day MA holds as support, we can continue to call the market resilient and cautious.

More Information in our Economic Calendar.