Wall Street Pullback as Inflation Pressures Reignite Rate Path Uncertainty
U.S. equities retreated Thursday, ending a two-day record streak for the S&P 500 (SPX) and Nasdaq Composite (IXIC), as hotter-than-expected wholesale inflation rekindled doubts over the pace and magnitude of the Federal Reserve’s next move. The Dow Jones Industrial Average (DJI) fell 229 points, or 0.5%, to 44,727.56, the S&P 500 slipped 0.3% to 6,452.95, and the Nasdaq eased 0.3% to 21,673.79. Smaller-cap names bore sharper losses, with the Russell 2000 tumbling 1.8% despite logging a 3% advance earlier in the week.
PPI Data Delivers Sharp Upside Surprise
July’s Producer Price Index surged 0.9% month-on-month, smashing consensus forecasts of 0.2% and marking its steepest jump since June 2022. On a year-over-year basis, PPI rose 3.3%, the fastest pace since February. Core PPI, excluding food and energy, also climbed 0.9% — its biggest gain since March 2022 — versus expectations of 0.3%. The move was driven by a 1.1% jump in final demand services, with portfolio management costs up 5.8%, and airfare also contributing heavily. Food prices advanced 1.4%, led by a 9.1% surge in raw milk and a 7.3% jump in eggs.
The spike tempered market conviction for a jumbo rate cut in September. CME FedWatch data showed odds of a quarter-point cut to 4.00%-4.25% at 92.7%, down from 94.3% a day earlier, while bets on a 50 bps move fell to zero from 5.7%. Yields reacted sharply, with the U.S. 10-year Treasury climbing toward 4.297%, its session high.
Fed Commentary Reflects Diverging Stances
St. Louis Fed President Alberto Musalem signaled he has revised down inflation risks but sees rising vulnerabilities in the labor market. While open to a September cut, he dismissed the case for a half-point reduction as “unsupported.” San Francisco Fed’s Mary Daly reiterated concerns that an outsized cut could signal unwarranted urgency, while Chicago Fed’s Austan Goolsbee noted persistent service price pressures. Former Bush adviser Marc Sumerlin, now confirmed as a contender for Fed Chair, advocated for a 50 bps cut, calling it “a no-brainer.”
Sector Moves and Notable Stock Reactions
Earnings and guidance drove some of the session’s largest single-stock swings.
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Deere (DE) slid over 6% to $478.43 after trimming full-year net income guidance to $4.75–$5.25 billion, down from a prior high-end of $5.50 billion, despite Q3 revenue of $1.53 billion topping expectations.
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Cisco Systems (CSCO) fell up to 3% post-earnings after delivering Q4 EPS of $0.99 on $14.67 billion in revenue, both narrowly ahead of consensus. AI-driven demand helped margins, but security segment softness and conservative guidance capped sentiment.
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Ibotta (IBTA) plunged more than 34% after missing Q2 revenue estimates at $86 million versus $90.5 million forecast, and projecting weaker Q3 sales.
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Tapestry (TPR) tumbled over 10% as tariff-related costs are set to shave $160 million off this fiscal year’s profits, overshadowing an earnings beat.
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C3.ai (AI) extended its five-day slide to over 20%, closing at $17.74 after guiding to a Q1 FY26 loss of up to $57.9 million, well below prior projections.
Mega-Cap and AI Leaders Under the Spotlight
Nvidia (NVDA) rose nearly 1% to $181.34 after countering a Fubon Research report suggesting delays to its Rubin AI chip. The company reaffirmed Rubin is on track following its unveiling at GTC 2025.
Amazon (AMZN) gained investor attention with plans to expand fresh grocery same-day delivery from 1,000 to 2,300 U.S. cities by year-end, a move JPMorgan labeled a “Best Idea” with a $265 target, highlighting market share gains versus Kroger (KR) and Albertsons (ACI).
Foxconn (2317.TW), Nvidia’s largest server manufacturing partner, posted a 27% Q2 profit jump, projecting AI server revenue to grow 170% YoY in Q3, underscoring the continued hyperscaler CapEx wave from Amazon, Microsoft (MSFT), and Alphabet (GOOG).
Cryptocurrency Rally Stalls After Record Highs
Bitcoin (BTC-USD) retreated 3% to $117,808 after touching $123,693 on Wednesday, pressured by reduced jumbo Fed cut expectations. Treasury Secretary Scott Bessent said the U.S. will neither buy more for its $15–$20 billion bitcoin reserve nor sell current holdings, but will add confiscated assets. Ethereum (ETH-USD) traded at $4,722, near its all-time high, with Fundstrat’s Tom Lee reiterating it as “the biggest macro trade” for the next 10–15 years. Newly listed crypto exchange Bullish (BLSH) held near $75, more than doubling its $37 IPO price despite volatility halts on debut.
Commodities and Mining Equities Show Divergence
Spot gold slipped 0.81% to $3,380.60, while the VanEck Gold Miners ETF (GDX) fell 0.93% to $57.53. UBS noted gold miners are regaining investor trust, with Gold Fields (GFI), AngloGold Ashanti (AU), Newmont (NEM), and Kinross Gold (KGC) up 25–40% in the past three months, outperforming the metal. Crude oil rallied 1.76% to $63.75 amid ongoing OPEC+ supply maneuvering.
Global Market Snapshot
Asia-Pacific trade was mixed: Nikkei 225 fell 1.45% to 42,649.26, Hang Seng Index slipped 0.37%, while S&P/ASX 200 climbed 0.53% to 8,873.80. In Europe, defense stocks gained ahead of the Trump–Putin meeting, while shipping giant Hapag-Lloyd warned of a slowdown from tariff impacts, sending its shares lower.
Based on the breadth of macro headwinds, stretched equity valuations, and the market’s recalibration of rate cut expectations, the near-term setup for U.S. equities looks neutral-to-bearish. While AI-driven megacaps like NVDA and AMZN maintain strong fundamental momentum, elevated PPI readings and narrowing rate cut odds suggest the S&P 500 could face consolidation pressure. Verdict: Hold on broad indices with selective Buy bias toward AI infrastructure leaders, and Sell stance on cyclicals exposed to cost inflation and softening guidance such as DE and TPR.
