Morning in New York: Focus on Producer Prices

A daily review and forecast of events in the U.S. stock market by Mikhail Denislov, Deputy Director of Capital Markets Research at Freedom Broker.

The key event of today’s session will be the release of the August Producer Price Index (PPI), which will be accompanied by pressure on oil prices. Brent crude prices are holding above $100 per barrel. Meanwhile, the yield on 10-year Treasuries is near 4.84% after hitting a high not seen since November 2023. Following a strong jobs report and a new round of energy price increases, the probability of a Fed rate hike in September is once again estimated at approximately 60%. Rises of around 0.2% in core indices could support stocks by pushing yields lower, whereas an acceleration to 0.4% or higher would heighten concerns ahead of tomorrow’s CPI release. Certain components of the PPI are used in calculating the PCE deflator, so the breakdown of the report may prove more important than its headline figure. Nevertheless, August’s CPI—which will be released tomorrow—will remain the more informative indicator for the Fed’s September decision.

The consensus forecast calls for a 0.4% month-over-month increase in the overall PPI and a 0.3% increase in the core PPI (July: 0% and +0.2%, respectively). For the index excluding food, energy, and trade services, an increase of 0.3% is forecast, compared with 0.4% the previous month. Our projections for the headline index are +0.36%, and for the two core indices, +0.24% and +0.23%. We estimate that rising fuel prices will be the main driver of the headline PPI. Forecasts for the core indices do not suggest a significant acceleration in price growth across a broad range of items.

As is customary on Thursdays, unemployment insurance claims data will be released (consensus: 205,000 versus 206,000 the previous week). The number of continuing claims is forecast to come in at 1.78 million, up from 1.779 million in the previous comparable period. If the data comes in close to these estimates, it will not have a significant impact on market dynamics. The most negative reaction from the stock market would be triggered by an acceleration in PPI growth while the number of unemployment insurance claims remains low. A strong labor market gives the Fed more room to raise interest rates.

The ECB meeting deserves special attention: the deposit rate is expected to rise by 25 basis points, to 2.5%. A more hawkish signal from the central bank could further support yields on debt instruments and increase pressure on U.S. growth stocks.

Before the market opens, Macy’s (M) will report its quarterly results. Oracle (ORCL), Adobe (ADBE), RH (RH), and Copart (CPRT) will report after the market closes. Oracle’s earnings release will be of the greatest interest. The company’s outstanding contract obligations have reached $638 billion, up 363% year-over-year, so it is important for the market to see how quickly this volume translates into actual revenue.

U.S. index futures are showing mixed trends. We assess the risk balance for the upcoming session as neutral, with elevated volatility. The key indicator following the PPI release will be the reaction in Treasury yields. Weaker data and falling yields will support stocks, while a strong report will increase pressure on rate-sensitive sectors.

— CooperCompanies (COO) shares are down about 15% following the decision not to sell the CooperSurgical division, as the offers received did not reflect its full value and long-term potential. At the same time, the company increased its share buyback program from $2 billion to $3 billion. The company’s revenue for the third fiscal quarter rose 1% year-over-year to $1.07 billion, adjusted EPS was $1.15, and the full-year earnings forecast was revised downward.

— Navan (NAVN) shares are down about 13%, despite strong earnings and an increase in annual guidance. Revenue increased by 35% to $233 million, compared to the LSEG consensus estimate of $220.5 million, while gross bookings rose by 45% to $3 billion. Operating expenses rose 46% to $200.2 million, and the operating loss reached $25.6 million. The company announced the acquisition of the BoomPop AI platform, but investors focused on Navan’s ability to convert rapid business growth into operating profit.

— American Eagle Outfitters (AEO) shares are down about 10% following the release of mixed quarterly results. The company’s revenue rose 8% to $1.4 billion, while comparable sales increased by 6%. However, comparable sales for the core American Eagle brand fell by 1%, while those for Aerie rose by 19%. The gross margin narrowed by 330 basis points due to increased discounts, while the net positive impact of import duty refunds on operating income amounted to $161 million. The weakness of the flagship brand and pressure on margins outweighed the upward revision to the annual operating profit forecast.

— Kinetik Holdings (KNTK) shares rose about 4% in after-hours trading following media reports of a possible sale of the company. The positive reaction reflects the emergence of a potential M&A premium in the issuer’s valuation.

— AeroVironment (AVAV) shares are up about 6% as the company’s revenue for the first quarter of the fiscal year reached a record $481 million for that period (+6% year-over-year), order intake totaled $0.7 billion with a book-to-bill ratio of 1.4. The backlog grew by 37% to $1.5 billion. The company maintained its full-year revenue guidance at $2.125–2.225 billion and its adjusted EBITDA guidance at $305–325 million. The growth in order volume and the backlog indicates continued strong demand and enhances revenue predictability.

Trading on U.S. stock markets on September 9 ended in the red. The S&P 500 fell 0.48%, the Nasdaq 100 dropped 0.29%, the Dow Jones lost 0.77%, and the Russell 2000 fell 1.32%. However, the S&P 500’s performance significantly underestimated the weakness of the broader market. The number of index components that declined exceeded the number that rose by more than four times, and the equally weighted RSP lost 0.96%. The industrial sector (XLI: -1.51%) and consumer cyclicals (XLY: -1.34%) were among the worst performers. Only the energy sector (XLE: +0.83%) managed to close the day in positive territory. The IT sector traded near the zero mark.

The conflict in the Middle East remains the main source of downward pressure. Brent rose 3.4% over the course of the day to $101.2 per barrel, returning to its highest closing price since May 22. This trend is fueling inflation fears and driving up Treasury yields. The yield on 10-year Treasuries rose by 5 basis points to 4.84%, reaching its highest level since November 2023. An additional driver of the rise was the announcement of a buyback of long-term Treasury bonds totaling up to $6 billion, compared to the previously stated minimum of $4 billion. This figure fell short of some market expectations. The successful placement of the 10-year notes eased pressure on the debt market, and yields retreated from their intraday highs.

The negative factors listed above had the strongest impact on the small-cap segment and a number of interest-rate-sensitive market sectors. Large “growth” companies (-0.35%) proved more resilient than “value” companies (-0.6%).

Apple (AAPL) held its traditional September event. This time, the event featured the first foldable iPhone Duo, as well as the new iPhone 18 Pro and Pro Max.

Meta Platforms (META) shares rose 6.6% following a positive investor reaction to the launch of the consumer AI agent Muse.

Signet Jewelers (SIG: +24%) shares soared following the release of strong quarterly results, an upward revision to its full-year forecast, and an expansion of its share buyback program.

Within the technology and AI sectors, performance remained mixed, which does not suggest a broad sell-off in AI-related stocks. The five issuers with the largest positive contribution to market performance added about +24 bps, while the five underperformers dragged the index down by approximately 30 bps. Their net contribution was only about -6 basis points, while the SPY corrected by 46 basis points. Combined with the market’s narrow trading range, this points to significantly broader selling pressure outside of these companies.

This article was AI-translated and verified by a human editor