Stock prices performed strongly on Tuesday after the latest U.S. wholesale inflation report was released. Still, investors should be cautious, according to Evercore ISI. The Wall Street research firm warned Tuesday that monthly producer price index readings have little correlation with the far more well-known consumer price index, which can have a much bigger impact on the stock market. The producer price index for July showed a 0.1% increase, less than economists expected. In other words, just because the producer price index rose less than expected doesn’t mean investors should expect a dovish consumer price index report on Wednesday. Stephen Stanley of Santander US agreed with that sentiment: “Financial markets seem to overreact to the producer price index every month,” said Stanley, the bank’s chief economist. “(It) has limited impact on the consumer price index, (which) is much more important.” However, if July consumer price index data released Wednesday further supports expectations of a Federal Reserve rate cut next month, it would likely give stocks another boost. The S&P 500 closed Tuesday’s session nearly 2% higher, while the Nasdaq Composite rose 2.4%. The Dow Jones Industrial Average rose more than 408 points, or 1.04%. The major averages are now well above the lows of Aug. 5, when the Dow and S&P 500 suffered their biggest one-day declines since 2022. .SPX 5D Mountain 5-day chart “When you think about the decline, we really just had normal seasonality in August coupled with a ‘black swan’ event,” David Russell, global head of market strategy at TradeStation, said Tuesday, pointing to the weak July nonfarm payrolls report that contributed to a global market sell-off early last week. “The data is not bad enough to impact earnings yet. … We are still targeting double-digit earnings growth.”
