Investors and traders responded to nuances around another hot inflation report on Thursday. And they shrugged off a pre-market social media post and a late-day press conference on potential new tariffs from President Donald J. Trump. Yields declined sharply, and tech stocks led what looks like an old-fashioned relief rally.
The Bureau of Labor Statistics said the Producer Price Index (PPI) ticked up to 0.4% in January, ahead of a consensus forecast of 0.3%. Core PPI, which excludes food, energy and trade services, came in at 0.3%, in line with expectations.
But – and it’s a big one, one that drove price action today – the components of January PPI that provide some read-through to the Personal Consumption Expenditures Price Index (PCE) were actually softer. And PCE – more specifically core PCE – is the Federal Reserve’s preferred measure of rising prices.
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As Comerica Bank Chief Economist Bill Adams notes, January PPI data include “flat or negative readings on most types of healthcare services, which points to a cooler core PCE inflation report for January than the month’s core CPI.”
The Fed, according to Adams, is “on hold near term” and “likely though not assured to make a single rate cut in 2025.” Adams says the Fed will likely need to see a cooling of “prices with lots of momentum like housing and residential rents” to “offset upward pressures on inflation from post-election changes to economic policy” before it makes another adjustment to its target range for the federal funds rate.
The Bureau of Economic Analysis won’t release the next set of PCE data until February 28 at 8:30 am Eastern Time. And the next Fed meeting isn’t until March 18-19.
Let’s talk about headline risk
“Headline risk” is, in short, overreacting to oversimplification.
More formally, according to the Corporate Finance Institute, it’s “the risk of a negative impact on the value of a company, as reflected by its stock price and other publicly traded instruments associated with the company.”
We can scale out and apply the same logic to financial markets broadly, which in these times is an essential exercise.
Shortly after the release of January PPI data, at 8:49 am, President Trump took to Truth Social to announce a “NEWS CONFERENCE ON RECIPROCAL TARIFFS TODAY, 1:00 p.m., THE OVAL OFFICE. MAKE AMERICA GREAT AGAIN!!!”
In the event, President Trump signed an order directing the U.S. Trade Representative and the Commerce secretary to propose tariffs on a country-by-country basis with no timeline for new levies to take effect.
“I’ve decided, for purposes of fairness, that I will charge a reciprocal tariff, meaning whatever countries charge the United States of America,” the president said during his Oval Office press conference. Trump added that he will impose tariffs on semiconductors, cars and pharmaceutical products in addition to the reciprocal tariffs.
Investors and traders saw the post and listened to the press conference, then stocks took off toward their highs of the session.
At the closing bell, the tech-heavy Nasdaq Composite surged 1.5% to 19,945. The broad-based S&P 500 Index added 1% to 6,115. And the blue-chip Dow Jones Industrial Average climbed 0.8% to 44,711.
The Magnificent 7 and the broader market
Tesla (TSLA) was up 5.8% as the EV stock extended what looks like a relief rally following a sharp response to earnings and inflation news.
And Nvidia (NVDA) added 3.2% to lead the 30 Dow Jones stocks, the AI darling coming off near-term lows even in the face of potential new tariffs on chips.
Apple (AAPL, +2%) and Alphabet (GOOGL, +1.4%) closed higher too. And Microsoft (MSFT, +0.4%), Amazon.com (AMZN, +0.6%) and Meta Platforms (META, +0.4%) surged late into the green.
Questions about inflation and interest rates as well as tariffs and other economic policy hang over the Magnificent 7 stocks and this entire market too, with disparate impacts across stocks, sectors and industries.
The broad early bounce for the Mag 7 and the major indexes likely reflected a notable decline in the 10-year U.S. Treasury yield from 4.634% on Wednesday to an intraday low of 4.529%. The 10-year yield ended the day at 4.535%.
At the same time, 30-day fed funds futures prices now show a rate cut won’t happen until September.
Stocks on the move
Robinhood Markets (HOOD) stock rallied 14.1% after the investing platform beat top- and bottom-line expectations for its fourth quarter, driven by a surge in crypto trading.
The Trade Desk (TTD) stock plunged 33% after the advertising platform beat on earnings but missed fourth-quarter revenue forecasts. The company also issued a soft first-quarter revenue forecast.
Reddit (RDDT) stock fell 5.2% after the social media platform topped fourth-quarter revenue and earnings expectations but came up short on user numbers.
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