Stocks struggled Thursday as the latest inflation update and surging oil prices sent Treasury yields soaring ahead of next week’s Federal Reserve meeting, where the central bank is expected to raise interest rates. However, those expectations could change with tomorrow morning’s release of the August Consumer Price Index (CPI) report.
Ahead of the open, the Bureau of Labor Statistics (BLS) said the Producer Price Index (PPI), which measures what businesses pay suppliers for goods, rose 0.4% from July to August, and was 5.4% higher year over year — faster than what was seen the month prior but in line with economists’ forecasts.
Core PPI, which excludes volatile food and energy prices, rose 0.2% month over month — a slight deceleration from July’s upwardly revised 0.3% increase — but accelerated year over year, rising 4.6% vs 4.2% the previous month.
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“August’s hot PPI was largely as expected, lifted by rising energy prices as the Iran war disrupts global supplies,” explains Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. He adds that core inflation looked sticky too.
“The surge in energy prices since the turn of the month creates new upside risk for inflation that is not captured by the August PPI report,” Adams says. Indeed, national diesel prices hit a record high of $5.9773 today, while front-month West Texas Intermediate crude futures jumped 6.7% to $102.48 per barrel. WTI oil has now risen for eight straight days, marking its longest winning streak since 2023, according to Dow Jones Market Data.
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“The September Fed decision looked finely balanced,” says Adams, and “September’s surge in energy prices will likely tip the balance towards a hike,” though “a big surprise from the August CPI report‘s release tomorrow or a last-minute deal with Iran could still influence the decision.”
At last check, CME Group FedWatch shows futures traders pricing in a 71% probability the Fed will raise the federal funds rate by a quarter-percentage point next Wednesday, up from 61% one day ago.
Stocks drop as Treasury yields spike
Sticky inflation and higher oil prices sent Treasury yields soaring Thursday. The 2-year Treasury yield closed at its highest point since mid-2024, up 15.2 basis points to 4.579%. The 10-year Treasury yield hit its loftiest level since 2023, rising 12.3 basis points to 4.963%.
As for equities, the blue-chip Dow Jones Industrial Average shed 0.6% to 52,064, the broader S&P 500 fell 0.6% to 7,591, and the tech-heavy Nasdaq Composite dropped 0.7% to 26,081.
Despite closing lower for a fourth straight day, gains in several mega-cap stocks, including Apple (AAPL, +3.6%), Alphabet (GOOGL, +0.6%) and SpaceX (SPCX, +0.4%) helped limit today’s losses for the main equity indexes.
AeroVironment climbs after earnings, Oracle slips ahead of its results
AeroVironment (AVAV) closed higher Thursday, rising 4.5% after the drone maker reported better-than-expected fiscal first-quarter results.
This was “the cleanest prints” for AVAV in recent quarters, says Stifel analyst Jonathan Siegmann, who has a Buy rating on the defense stock. “AVAV is finally showing substantial, quality backlog build in its key defense-tech franchises — directed energy, counter-drone, and unmanned systems.”
Next up on the earnings calendar is Oracle (ORCL), which reports after tonight’s close. The tech stock fell 5.2% ahead of the release of its fiscal first-quarter print, which is expected to show an 18% year-over-year rise in earnings on 28% revenue growth.
Mizuho Americas analyst Siti Panigrahi expects the cloud computing infrastructure company to exceed estimates, and he’ll be watching for updates on Oracle Cloud Infrastructure (OCI), revenue performance obligation momentum, capital expenditures funding clarity, margins and free cash flow.
Argan drops despite 40% dividend hike
Argan (AGX) was another notable mover Thursday, falling 1.4% despite the energy and industrial infrastructure builder hiking its quarterly dividend by 40% to 70 cents per share. This works out to an annual payout of $2.80 and a dividend yield of 0.7% based on today’s close.
“This is an exciting time for our Company as our industry experiences unprecedented demand for new dispatchable power generation to support the significant load growth driven by data centers, domestic manufacturing, and the broader electrification of the economy,” said Argan CEO David Watson while explaining the company’s fourth straight annual dividend hike.
Even with today’s decline, the industrial stock is up nearly 29% for the year to date on a total return basis (price change plus dividends), more than doubling the S&P 500’s 12.5% gain.
