S&P500: PPI Today Holds the Key After Soft CPI Lifts US Stocks

Soft CPI Resets Rate Odds, PPI Up Next

CPI fell and the tape ran. Wednesday’s pre-market is extending Tuesday’s bid with a round of earnings and the Producer Price Index (PPI) ahead. The positioning was wrong heading into the number and the unwind has not finished.

S&P 500 Index futures are trading 7608.00 at 09:45 GMT, up 16.75 or +0.22%. Nasdaq-100 Index futures are at 29937.25, up 147.00 or +0.49%. Dow futures are at 52916.00, up 125.00 or +0.24%.

The Bank Sweep Raised the Bar for Wednesday

The banks went five for five Tuesday and did it on the same day CPI rolled over. That kind of alignment between the rate story and the earnings story does not happen often, and the tape treated it accordingly. The problem now is what it means for Wednesday morning. When the entire financial sector clears expectations in one session, in-line numbers from the next group are not going to move the needle.

Morgan Stanley reports before the bell and the market is not going to give it credit for matching what the rest of the banks already delivered. Johnson & Johnson and BlackRock need to show the strength extends beyond financials or the rally stalls on sector rotation. United Airlines is the wildcard because fuel costs are running and the market wants to see how the airlines are absorbing it.

July Hike Went from Coin Flip to Dead

CME FedWatch had the July hike at 42% going into the CPI print and it dropped to 17% by the close, which tells you how wrong the positioning was heading into the number.

September still carries 63% odds of higher rates. The market bought time Tuesday, not a trend change. The tightening cycle is not over. But the July timeline lost its teeth and that was enough to get risk moving again.

Oil is still elevated and the AI buildout keeps pulling power demand higher. Those are the forward inflation inputs that Tuesday’s number did not erase. But for now those are Wednesday’s problem. Tuesday belonged to the bulls and the pre-market says they are not done.

PPI Is Wednesday’s Confirmation Trade

The Producer Price Index release Wednesday morning is the second half of this week’s inflation read. The Street expects headline flat in June and core at 0.3%.

Treasury yields are telling you the market is not fully committed. The 10-year climbed to around 4.60% and the 2-year moved near 4.21% after both dropped on Tuesday’s CPI print. Bonds gave back part of that move overnight. The fixed income side wants the second number before it commits to the rate trade.

That split between equities and bonds heading into Wednesday morning is worth watching. Stocks bought the CPI and kept running. Bonds are hedging. The PPI number is the tiebreaker.

A soft PPI settles the debate heading into the July meeting. A hot core reading reopens it and puts a ceiling on equities before the close.

Stocks in the News

IBM recovered modestly Wednesday morning after posting its biggest single-day decline on record following disappointing preliminary results.

SpaceX found a small bid after falling to a fresh post-IPO low in the previous session.

Daily September E-mini S&P 500 Index

September E-mini S&P 500 Index futures are edging higher early Wednesday as it tries to build a support base on the strong side of a short-term retracement zone at 7540.50 to 7493.00. Inside this zone is the 50-day moving average at 7523.68. All of these points are lining up to support the upside bias that has put the benchmark index in a position to breakout over the two secondary lower tops at 7628.75 and 7648.75. These are the only two headwinds preventing a test of the record high at 7693.75.

In my opinion, the bullish conditions will begin to shift on a sustained move under the 50-day moving average. Downside momentum could pick up as bottoms at 7468.50, 7357.25 and 7292.25 are broken. I am not confident that the next round of selling pressure is going to turn into a potential buying opportunity until the market corrects into the 200-day moving average at 7102.94 and the long-term retracement zone at 7047.75 to 6895.25.

There appears to be a strong enough set-up at this time to produce a new all-time high, but it’s going to take time if investors continue to passively bid. To get strong upside momentum, buyers are going to have to be willing to actively take out offers. Since we’re in a news-driven, earnings-driven market, the news is going to have to be game changing to get investors to pay up for stocks that some consider to be overpriced now.

What to Watch

PPI is the only macro catalyst Wednesday. A soft print extends the rate move that started Tuesday and keeps the equity bid intact. The bank sweep gave this market the strongest possible start to reporting season, and Wednesday’s releases test whether the strength extends beyond financials. Cooling inflation with strong earnings is the backdrop the bulls needed and the one the bears have to argue against.

The S&P 500 is building a base above its 50-day with two resistance levels between here and the all-time high. The setup favors the breakout, but the tape needs buyers willing to pay up. PPI and the next round of earnings are the catalysts that either produce it or keep the market building passively until something forces the move.

More Information in our Economic Calendar.