Stocks Ponder Earnings Reports and Consumer Prices: Current Stock Market Status
The Federal Reserve's upcoming decision on interest rates is shrouded in anticipation, with Treasury Secretary Scott Bessent calling for a 50 basis point cut at the next meeting. However, the Federal Open Market Committee does not convene in August, and the next gathering will be next week for the Jackson Hole Economic Symposium.
Despite an unexpected surge in July wholesale prices, many analysts believe the overall economic growth moderation and softer employment data outweigh the inflation uptick, supporting the case for easing. The current outlook strongly favors a Federal Reserve interest rate cut in September 2025, with market expectations and economic indicators pointing to a high probability—ranging from about 80% to over 90%—that the Fed will reduce rates by 0.25 percentage points at its upcoming meeting.
Scott Bessent's comments align with market sentiment and the Fed’s recent subtle policy shifts, including dissenting votes favoring cuts at the July meeting and moderated growth language in the Fed’s statement. The dominating narrative is that the Fed is preparing to cut interest rates in September 2025.
Meanwhile, the stock market has been gaining steam in recent weeks on expectations of a September rate cut. Jerome Powell's commentary at the Jackson Hole Economic Symposium will be crucial, as it could affirm or challenge these expectations.
In other news, Deere reported higher-than-expected earnings of $4.75 per share and revenue of $10.4 billion. However, Deere (DE) stock was down 6.8% on Thursday, as analysts believe tariff cost pressures and persistent weakness in agriculture fundamentals contributed to DE's narrowed full-year earnings guidance.
The labor market remains stable, as suggested by weekly jobless claims data. The S&P 500 inched up two points to 6,468, while the Nasdaq Composite was down 1.8 points to 21,711. The Dow Jones Industrial Average was off 11 points at 44,911.
The PPI report from the Bureau of Labor Statistics showed that wholesale inflation surged 0.9% from June to July, which is the largest monthly increase since June 2022. Clark Gernanen, Chief Market Strategist at CalBay Investments, wrote that Thursday's PPI was stronger than expected and suggests that tariffs are causing inflation. Interestingly, July CPI was softer than expected, indicating that businesses are absorbing much of the tariff costs instead of passing them onto the consumer.
Looking ahead, September's average return for the S&P 500 is -1.1%, which is the worst monthly performance. However, October's average return is 0.5%. Earnings continue to generally support the long-term trend despite seasonal headwinds. Management at Deere now expects net income for the full fiscal year to be $5 billion at the midpoint, down from a previous forecast of $5.15 billion.
In conclusion, while inflation concerns and tariffs add some uncertainty, the dominant narrative is that the Fed is preparing to cut interest rates in September 2025, with futures markets implying a roughly 83%-94% probability and Fed communications reflecting readiness for easing. Investors, traders, and speculators are waiting for affirmation of their expectations that the Fed will move and make a rate cut.
Trading activity in the financial market is heightened as investors and speculators eagerly await Jerome Powell's commentary at the Jackson Hole Economic Symposium, anticipating confirmation of expected September interest rate cuts. The current business climate strongly encourages investing in assets predicted to gain from the anticipated Federal Reserve easing.
Despite July's wholesale prices surge, many analysts still believe that a Federal Reserve interest rate cut in September 2025 is highly probable, given the moderation in economic growth and softer employment data, which contrasts the inflation uptick, making it a favorable case for easing in the finance world.
