Market in Rally Mode After CPI Drove Record Highs

Published as of: August 13, 2025, 9:12 a.m. ET

(Wednesday market open) Major indexes built on record highs early as investors kept buzzing over Tuesday's inflation data that soothed some tariff concerns but also showed signs of price pressure. The S&P 500 index posted its 16th record high of the year, and volatility fell to its lowest level since the end of 2024. This suggests market participants expect smoother sailing ahead, though low volatility can sometimes be a contrarian signal indicating complacency.

Tuesday's broad rally followed a July Consumer Price Index (CPI) that rose 2.7% year over year, meeting consensus. "CPI was in line, reinforcing expectation of a Fed rate cut in September," said Liz Ann Sonders, chief investment strategist at Schwab. Companies that often thrive when consumers feel free to spend did well Tuesday, led by airlines, home builders, big-box stores, and cruise lines. Banks and chip firms held their own, and small caps also had a good day. Airline shares benefitted directly from CPI, which showed air fares up after five consecutive declines. Still, the market appears top-heavy, with just 24% of S&P 500 stocks outperforming the index over the last 60 days.

Richmond Federal Reserve President Thomas Barkin, Atlanta Fed President Raphael Bostic, and Chicago Fed President Austan Goolsbee all speak today, perhaps with thoughts on CPI. Goolsbee is often seen as a dove, but Barkin told Bloomberg yesterday that risks remain for both inflation and unemployment, and he hasn't made up his mind on adjusting rates. As of early today, chances of a rate cut at next month's Fed meeting were 98%, according to the CME FedWatch Tool, and the futures market projects better than 50% chances of three rate cuts before year-end.

1. Wholesale prices, continuing claims eyed Thursday: Today provides a data respite, but fresh inflation numbers arrive early tomorrow with the July Producer Price Index (PPI) report, measuring wholesale costs. For PPI, analysts expect both headline and core readings up 0.2% month over month, from flat in June. Core excludes food and energy. On an annual basis, analysts expect PPI of 2.5% and core PPI of 2.9%, and focus again could be on prices of imported goods that might reflect tariff pressures. Tomorrow's weekly jobless claims data could also be worth checking after continuing claims—a measure of how tough it is to find work—reached nearly four-year highs last week up around 1.97 million.
    
2. Tariffs and deflation? Something to check in PPI: Though many economists believe President Trump's tariffs could lift inflation, less discussed is the potential deflationary aspect of retaliatory tariffs on U.S. exports. Though many countries, including the European Union, haven't slapped tariffs on U.S. goods in reaction to U.S. trade policy, China maintains 10% tariffs on U.S. imports as the two countries continue to negotiate a long-term deal, and Canada responded to Trump's tariffs with levies on U.S. goods including vehicles. This could mean falling U.S. exports of some products, leading to excess supply that ultimately might keep prices down for certain goods. This could be especially noticeable on the wholesale side covered by PPI, since commodities that go into products like food are among those possibly seeing an impact. Corn futures, for instance, are down more than 12% year to date, and energy prices have also fallen. Additionally, prices for new vehicles were flat last month, according to CPI. Another longer-term deflationary aspect could be that many companies have seen their margins hit by U.S. tariffs on imports, which ultimately could reduce earnings and lead to slower economic growth.
    
3. Cisco waits in wings: This afternoon features Cisco (CSCO), often seen as a bellwether for global tech demand. The network hardware vendor benefited last time out from AI infrastructure orders made by big internet firms, CNBC reported at the time, and beat consensus expectations but cited an uncertain macroeconomic environment. Networking revenue, a prime component to watch in Cisco's release, rose 8% when the firm reported in May. Another tech firm, Applied Materials (AMAT), a semiconductor equipment maker, reports tomorrow afternoon after missing analysts' expectations on revenue in its fiscal second quarter. Semiconductor revenue growth is key to watch with this one, and Applied Materials impressed with its guidance last time out.

• CoreWeave (CRWV) plunged 9% this morning as it reported a wider quarterly loss than analysts had expected. It did raise third quarter and fiscal 2025 revenue guidance, citing "unprecedented" AI demand. However, shares had soared ahead of earnings.
   
• United Airlines (UAL), Delta Air Lines (DAL), and American Airlines (AAL) all rose 8% to 11% yesterday, helped in part by the July CPI report. It showed air fares rising in July after five months of descent. Hopes for lower interest rates to give consumers more spending power might also have played into yesterday's rally in airlines and across the consumer discretionary sector, with home builders, resorts and casinos, and big-box stores also generally climbing Tuesday.
   
• Companies sensitive to tariffs generally performed well yesterday as the U.S. gave China three additional months to reach a deal. Shares of Foot Locker (FL), lululemon athletica (LULU), Toyota (TM), Boeing (BA), Target (TGT), and Nike (NKE) were among those that gained 1% or more Tuesday.
   
• Cava Group (CAVA) shares caved nearly 25% early Wednesday after the restaurant chain served up a disappointing earnings report. Sales at stores open a year or more came in below analysts' expectations and the company lowered its forecast. The company said its consumers are dealing with a lot of headwinds and uncertainty, Dow Jones Newswires reported.
   
• Lumentum Holdings (LITE) climbed 4% ahead of the open after earnings beat estimates and the company cited strong demand for its AI data center solutions business.
   
• Webtoon Entertainment (WBTN) shares soared on a solid earnings report and the company's announcement that its mobile platform will now feature comics from Walt Disney (DIS).
   
• Alibaba (BABA) jumped 3.6% ahead of tomorrow's earnings report.
   
• Alphabet (GOOGL) climbed 1% yesterday as AI startup Perplexity offered $34.5 billion to buy Google's Chrome browser, Bloomberg reported. The U.S. government has said it wants Google to sell Chrome after finding the company has an illegal search monopoly.
   
• U.S. crude oil futures (/CL) hit a two-month low early today below $63 per barrel after the International Energy Agency (IEA) said in its monthly report that oil market balances "look ever more bloated" with supply expected to far eclipse demand toward year-end and into 2026.
   
• Weekly U.S. mortgage applications rose 10.9% from a week earlier in the latest weekly survey from the Mortgage Banker's Association (MBA) and the average 30-year mortgage interest rate fell to 6.67%, the lowest in four months.
   
• U.S. Treasury yields rose yesterday in part on annual core CPI rising to 3.1%, but fell early today along with the U.S. Dollar Index. The dollar has come under pressure as rate cut ideas take hold.

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Cboe Volatility Index (VIX-candlesticks) futures broke below a long-term technical support level (blue line) on Tuesday, which some traders are likely to read as a bullish sign for stocks because the VIX tends to move in the opposite direction of the S&P 500 stock index. Some traders prefer VIX futures to the VIX index because it includes 0DTE (zero days to expiration) options into its calculation. The VIX index didn’t have a similar breakdown, so the move may provide more insights into how very short-term traders see the market which appears to be swinging bullish. If VIX futures continue to slide, investor complacency is likely to rise.

August 14: July PPI and expected earnings from Deere (DE), JD.com (JD), Tapestry (TPR), and Applied Materials (AMAT).
August 15: July retail sales, July industrial production, and preliminary August University of Michigan Consumer Sentiment.
August 18: Expected earnings from Palo Alto Networks (PANW).
August 19: July housing starts and building permits and expected earnings from Home Depot (HD) and Medtronic (MDT).
August 20: FOMC minutes and expected earnings from TJX Companies (TJX), Lowe's (LOW), Analog Devices (ADI), Target (TGT), Estee Lauder (EL), and Baidu (BIDU).