US stock futures steady after Wall St gains on rate cut bets; PPI inflation on tap

U.S. equities, including the S&P 500 and Nasdaq, reached fresh record highs, largely fueled by strong market expectations for a Federal Reserve rate cut in September following moderate consumer price growth. While market participants price in a nearly 95% chance of a cut, upcoming data including Thursday's PPI and jobless claims, and Friday's retail sales and consumer sentiment, are keenly awaited. However, some analysts caution that inflation could rebound to 4% in the coming months, potentially challenging the long-end of the yield curve and complicating the Fed's decision-making, as highlighted by Chicago Fed President Goolsbee's assessment of tariff impacts on inflation. Separately, Cisco shares edged lower post-earnings, and CoreWeave slumped over 20% on wider losses.

Analysis

U.S. equity markets have reached new record highs, with the S&P 500 and NASDAQ Composite closing at fresh peaks driven by strong expectations for a Federal Reserve interest rate cut in September. Market sentiment, underscored by a CME FedWatch tool probability of nearly 95%, is currently pricing in monetary easing following moderate July consumer price data. However, this optimism faces imminent tests from key economic data releases, including producer prices (PPI), jobless claims, and retail sales. A note of caution is warranted, as ING analysts project a potential rebound in core inflation to 3% and a rise towards 4% within the next six months, which could exert upward pressure on long-end yields even if the Fed proceeds with cuts. This uncertainty is compounded by comments from Chicago Fed President Austan Goolsbee regarding the unpredictable inflationary impact of tariffs. On a micro level, the market is demonstrating a low tolerance for disappointment; Cisco Systems (CSCO) shares declined despite in-line results and guidance, while CoreWeave (CRWV) plummeted over 20% after reporting wider-than-expected losses.

Key Decisions for Investors

• Given that markets are pricing in a near-certainty of a September rate cut, investors should monitor upcoming PPI and jobless claims data closely, as any significant deviation from expectations could trigger heightened volatility.
• The negative stock reaction for Cisco on in-line results suggests elevated market expectations, indicating investors should exercise caution with positions in companies reporting earnings soon, such as Deere & Co and Tapestry.
• Consider the divergent outlook between short-term rate cut optimism and warnings of rising long-term inflation, which could lead to yield curve steepening and poses a risk to long-duration assets.