Wall Street Slips on Unexpected Wholesale Inflation Data/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ Most U.S. stocks declined after wholesale inflation in July exceeded expectations, sparking doubts about a September Federal Reserve rate cut. The S&P 500 dipped slightly despite support from Big Tech. Small-cap stocks led the losses as borrowing concerns intensified.
Market Inflation Reactions Quick Looks
- U.S. wholesale inflation rose 3.3% in July
- Economists had forecast a more moderate 2.5% increase
- S&P 500 dipped 0.1%, Dow fell 79 points
- Nasdaq held near record despite broader losses
- Russell 2000 dropped 1.3%, hit by rate sensitivity
- Treasury yields climbed after inflation report
- Fed rate cut odds fell sharply to 92.5%
- Jobless claims fell, suggesting continued labor market strength
- Tapestry stock tumbled 15.1% on tariff impact
- Deere dropped 6.5% after profit forecast cut
- Amazon rose 2.3%, boosting S&P 500
Deep Look: Wall Street Slips After Higher-Than-Expected Inflation Data
NEW YORK — U.S. markets retreated Thursday morning after new data showed that wholesale inflation surged in July, casting doubt on earlier expectations that the Federal Reserve would cut interest rates in September.
According to the Labor Department, producer prices rose by 3.3% compared to July 2024, significantly above the 2.5% predicted by economists. The unexpected inflation spike jolted investors, leading to broad declines across major indexes, though strong gains in a few tech giants helped mitigate deeper losses.
Broad Market Pullback Amid Inflation Worries
Three out of every four stocks in the S&P 500 declined. While the index only slipped by 0.1% from its all-time high set the day before, smaller companies bore the brunt of the selling. The Russell 2000 index dropped by 1.3%, reflecting how rising borrowing costs particularly hurt smaller businesses that rely heavily on credit for growth.
The Dow Jones Industrial Average lost 79 points, or 0.2%, while the Nasdaq composite, supported by tech strength, was down slightly from its record high.
The disappointing inflation report forced traders to reevaluate what had been near-universal confidence in an upcoming rate cut by the Federal Reserve. Previously, markets had fully priced in a September rate cut. However, after the report, the probability of a hold increased to 7.5%, according to data from CME Group.
Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, said, “This doesn’t slam the door on a September rate cut, but it raises legitimate doubts.”
Rate Sensitivity and Economic Signals
Higher interest rates increase the cost of borrowing for consumers and businesses, often pressuring stock prices, particularly in rate-sensitive sectors. Small-cap companies, typically more vulnerable to credit costs, led the market lower.
In the bond market, Treasury yields responded immediately. The yield on the 10-year Treasury note jumped from 4.20% to 4.26% after the inflation data was released. The move reflects growing skepticism that the Fed can afford to ease monetary policy anytime soon.
Adding complexity to the picture, a separate report showed that new unemployment claims dropped last week. While good news for workers, a strong labor market gives the Fed fewer reasons to stimulate the economy with lower rates.
Company-Specific Movers: Tariffs and Caution
Corporate earnings reports also moved markets.
Tapestry Inc., the parent company of Coach and Kate Spade, saw its stock plunge 15.1%. The company reported better-than-expected profits for the previous quarter, but its outlook was clouded by the impact of tariffs and import duties. Tapestry warned that these costs could significantly affect its upcoming fiscal year, and its profit forecast fell short of Wall Street expectations.
Deere & Co. also posted stronger-than-expected quarterly profits but revised its full-year profit outlook downward. Shares of the agricultural machinery manufacturer fell 6.5% as it cited continued customer caution and economic uncertainty.
On the upside, Fossil Group jumped 15.4% after reporting a better-than-anticipated profit and announcing plans to shore up its finances. Despite reducing its global sales forecast, investors responded positively to the company’s strategy to improve margins.
Big Tech Helps Offset Broader Declines
Large-cap tech stocks helped limit losses on the S&P 500. Amazon gained 2.3%, building on momentum from the previous day after announcing an expansion of its same-day grocery delivery service to over 1,000 cities and towns. Given its market capitalization of $2.45 trillion, Amazon’s price movement significantly affects the index.
These gains masked broader weakness, as most sectors fell in response to inflation data and shifting Fed expectations.
Global Markets and Geopolitical Outlook
International markets were mixed. Investors abroad remained cautious ahead of an upcoming high-profile meeting between President Donald Trump and Russian President Vladimir Putin scheduled for Friday. Markets in Asia and Europe posted varied results amid the uncertainty.
As Wall Street continues to digest economic data and corporate earnings, inflation remains a top concern. While consumer inflation reports earlier in the week appeared more favorable, Thursday’s wholesale inflation update suggests continued pricing pressure that may challenge the Fed’s monetary policy flexibility.
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