Stocks pare gains, Nasdaq seesaws as post-CPI rally fizzles out

[The iconic Charging Bull statue is not surrounded by the usual crowd because the city is deserted during the state of emergency triggered by the COVID-19 pandemic.]
Alex Potemkin

U.S. stocks on Wednesday pared some gains in morning trade as a rally sparked by heightened expectations for Federal Reserve rate cuts ran out of steam.

After notching fresh record intraday highs, at 6,480.28 and 21,803.75 points, respectively, the S&P 500 and Nasdaq were now hovering near the flat line.

The benchmark S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]) was last +0.2%, while the Nasdaq Composite (COMP:IND [https://seekingalpha.com/symbol/COMP:IND]) seesawed, and was last +0.1%. The blue-chip Dow (DJI [https://seekingalpha.com/symbol/DJI]) held onto its gains, last +0.8%.

“Stocks are seeing another boost higher as tariff fears are less than expected, earnings are strong, and prospects for a fall Federal Reserve rate cut are rising,” said Rich Mullen, founding partner and CEO of Pallas Capital Advisors.

“Stocks have seen a boost over the past few years from strong consumer spending and strong corporate spending on AI. It's unclear if the stock market can rely solely on corporate AI spending as its source of fuel. A slowing consumer is an underappreciated risk for stocks, which should be taken seriously as the labor market is showing signs of cracks and consumers are exhausted from high prices,” Mullen added.

After the July Consumer Price Index [https://seekingalpha.com/news/4483847-core-cpi-accelerates-to-31-yy-in-july#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] report, investors are now pricing a 99.9% chance of a rate cut at the September meeting, according to the CME’s FedWatch Tool [https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html].

“Inflation has been tame, and while many businesses have been able to avoid passing on higher costs to consumers, there are still questions on how much longer this trend can last. Thursday's PPI will be another key gauge to assess how tariffs are affecting business costs,” Mullen said.

In other Fed news, President Donald Trump is now considering [https://seekingalpha.com/news/4484590-white-house-casts-wider-net-in-fed-chair-search-including-jefferies-blackrock-execs---reports] 11 candidates for Federal Reserve chair, including Jefferies' David Zervos, former Fed Governor Larry Lindsey, and BlackRock's Rick Rieder, according to a media report on Wednesday.

On Wednesday, Trump said he will be speaking with European Leaders "in a short while" to discuss possible deals.

Also, Trump is expected to meet Russian leader Vladimir Putin on Friday [https://seekingalpha.com/news/4482912-trump-to-meet-putin-in-alaska-next-week-as-zelenskyy-rejects-ceding-ukrainian-territory#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] in Alaska. The meeting comes amid raised hopes of progress over a truce between Russia and Ukraine to end the war.

Over in the bond market, the 10-year Treasury yield (US10Y [https://seekingalpha.com/symbol/US10Y]) fell 5 basis points to 4.24%, while the 2-year yield (US2Y [https://seekingalpha.com/symbol/US2Y]) fell 4 basis points to 3.69%.

Wednesday's economic calendar is relatively calm. The July wholesale inflation [https://seekingalpha.com/news/4483312-julys-cpi-is-likely-to-show-more-tariff-pressure-on-prices] will land on Thursday before the market opens.

U.S. stocks closed at all-time highs on Tuesday after the July retail inflation report came largely in line, while core CPI was slightly hot on a yearly basis, fueling Federal Reserve rate cut odds to increase to more than 90%.

MORE ON MARKETS:

* Tariffs Causing Inflation? Not So Fast! [https://seekingalpha.com/article/4812676-tariffs-causing-inflation-not-so-fast]
* July CPI: Fuel And Housing Steal The Show [https://seekingalpha.com/article/4812642-july-cpi-fuel-and-housing-steal-the-show]
* July CPI: Inflation Persists, But Path To September Cut Stays Clear [https://seekingalpha.com/article/4812620-july-cpi-inflation-persists-but-path-to-september-cut-stays-clear]
* BTIG’s Krinsky says S&P 500 might slip toward 6,100 on seasonal weakness [https://seekingalpha.com/news/4476936-btigs-krinsky-says-sp-500-might-slip-toward-6100-on-seasonal-weakness]