Stock Rally Hits a Wall as US Inflation Picks Up: Markets Wrap

(Bloomberg) — The blistering run in stocks hit a wall as a pick-up in inflation lifted bond yields alongside the dollar, with traders paring bets the Federal Reserve will cut interest rates next month.

After a 30% surge from its April lows, the S&P 500 barely budged. While the move was mild amid gains in most big techs, over 350 shares fell. Intel Corp. jumped as the US was said to discuss taking a stake in the chipmaker. In late hours, Applied Materials Inc. gave a downbeat forecast.

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Two-year yields climbed six basis points to 3.73%. While money markets still project at least half a percentage point of Fed easing in 2025, swaps show the odds of a September cut fell to around 85%.

US wholesale inflation accelerated in July by the most in three years, suggesting companies are passing along higher import costs related to tariffs. The producer price index increased 0.9% from a month earlier and 3.3% from a year ago. Services costs jumped 1.1% last month.

With consumer price data earlier this week pointing to a milder pass-through in July, and the labor market now shifting to a lower gear, the Fed is widely expected to cut rates next month. However, firm wholesale inflation data may give some officials pause that prices are rearing back up.

To Chris Zaccarelli at Northlight Asset Management, the spike in PPI shows inflation is coursing through the economy, even if it hasn’t been felt by consumers yet.

“Given how benign the CPI numbers were on Tuesday, this is a most unwelcome surprise to the upside,” he said.

“The fact that PPI was stronger-than-expected and CPI has been relatively soft suggests that businesses are eating much of the tariff costs instead of passing them onto the consumer,” said Clark Geranen at CalBay Investments.

With input costs rising, this could impact earnings for companies in the third and fourth quarters, according to Fawad Razaqzada at City Index and Forex.com. Yet, the downside was limited, suggesting that investors are not too concerned just yet.

“It is likely that the Fed will see through the rise as the one-time increase and their concerns about the jobs market may make them more open to the idea of resuming rate cuts from September,” he said.

The jump in PPI reflects lingering cost pressures — some driven by tariffs — but core inflation trends remain contained, according to Gina Bolvin, president of Bolvin Wealth Management Group.

“It’s a reminder that the path to lower rates may not be linear, but the broader disinflationary trend is still intact,” she said. “This is not a signal to panic. It’s a time to focus on fundamentals, maintain diversification, and look for companies with strong pricing power and healthy margins.”

“This doesn’t slam the door on a September rate cut, but based on the market’s initial reaction, the opening may be a little smaller than it was a couple of days ago,” said Chris Larkin at E*Trade from Morgan Stanley.

If anything, the data poured cold water on 50 basis-point rate cut expectations and offered fodder to the hawks who are skeptical of the prudence of a 25 basis-point rate cut at next month’s Fed meeting, according to Ian Lyngen at BMO Capital Markets.

Thierry Wizman at Macquarie Group says the Fed is more likely to give us a “hawkish” cut than a “dovish” cut in September, assuming no radical changes in the direction of data or markets until then.

The more concerning aspect is that the full impact of tariffs is expected to materialize in next month’s data, according to Eugenio Aleman at Raymond James.

“This complicates the Fed’s September decision, where a 25bps cut remains likely, but a 50bps move is most likely off the table,” he said.

Treasury Secretary Scott Bessent said he isn’t calling for a series of rate cuts from the Fed, just pointing out that models suggest a “neutral” rate would be about 1.5 percentage points lower.

“I didn’t tell the Fed what to do,” Bessent told Fox Business, referring to his comments a day before about how the central bank “could go into a series of rate cuts here.”

Meantime, Fed Bank of St. Louis President Alberto Musalem told CNBC it’s too early for him to decide on whether to lower interest rates at next month’s meeting.

And His Richmond counterpart Tom Barkin said he sees signs that the environment for US consumers improved in July after weakness earlier in the year.

From here, analysts and investors are getting ready to scour Friday’s retail sales report and a key gauge of consumer sentiment for clues on how US households are feeling about the economy.

Corporate Highlights:

Apple Inc. is restoring the blood oxygen tracking feature on its smartwatch in the US following a years-long legal fight. Deere & Co., the world’s biggest farm machinery maker, pared its annual earnings outlook with lower grain prices curbing growers’ spending. Peloton Interactive Inc. is planning its biggest product upgrades in years, a bid to rejuvenate sales with refreshed hardware, new accessories and artificial intelligence. Eli Lilly & Co. is raising the list price for its obesity shot in the UK by as much as 170%, as the pharma industry comes under pressure from US President Donald Trump to increase medicine prices in Europe and lower them for Americans. JD.com Inc.’s revenue grew a faster-than-anticipated 22%, benefiting from government-directed consumer subsidies as well as an aggressive but costly drive into new arenas such as meal delivery. Costco Wholesale Corp. has decided not to dispense the abortion pill mifepristone at its more than 500 pharmacy locations, a decision hailed by a group of faith-based activists who urged the retailer to avoid selling the drug. Southwest Airlines Co. sold a renewable fuels unit to Conestoga Energy as the carrier scales back its climate-focused initiatives following years of little progress by the industry. Rogers Communications Inc. will sell a portfolio of nine data centers to infrastructure asset manager InfraRed Capital Partners to help pay down debt. Tapestry Inc. has been one of the stars of the retail world, but a mix of tariff costs and weakness at its Kate Spade brand sent investors fleeing on Thursday. Carlsberg A/S reported a drop in volumes and warned consumers were continuing to pull back on spending. Klarna Group Plc had to set aside more money for potentially souring loans in the second quarter, a move that put pressure on results ahead of its expected public debut. Hon Hai Precision Industry Co. expects sales of servers to more than double this quarter while its consumer electronics business dwindles, underscoring how it’s relying on the AI boom to offset volatile iPhone sales. Some of the main moves in markets:

Stocks

The S&P 500 was little changed as of 4 p.m. New York time The Nasdaq 100 was little changed The Dow Jones Industrial Average was little changed The MSCI World Index fell 0.1% Bloomberg Magnificent 7 Total Return Index rose 0.4% The Russell 2000 Index fell 1.2% Currencies

The Bloomberg Dollar Spot Index rose 0.4% The euro fell 0.5% to $1.1649 The British pound fell 0.3% to $1.3537 The Japanese yen fell 0.3% to 147.76 per dollar Cryptocurrencies

Bitcoin fell 4.1% to $117,951.03 Ether fell 3.9% to $4,535.24 Bonds

The yield on 10-year Treasuries advanced five basis points to 4.29% Germany’s 10-year yield advanced three basis points to 2.71% Britain’s 10-year yield advanced five basis points to 4.64% The yield on 2-year Treasuries advanced six basis points to 3.73% The yield on 30-year Treasuries advanced five basis points to 4.87% Commodities

West Texas Intermediate crude rose 2.2% to $64.04 a barrel Spot gold fell 0.5% to $3,338.48 an ounce ©2025 Bloomberg L.P.