EB Daily Market Report - Brief Update - Thursday, August 14, 2025
Brief Market Update
Two days after the July Core CPI came in as expected and fueled a massive rally in areas of the stock market that would benefit from upcoming rate cuts by the Fed, the July PPI was released and told a completely different story, which is confusing market participants. July headline PPI soared +0.9%, well above the +0.2% that was expected. When volatile food and energy prices were stripped out, the July Core PPI still rose +0.9%, which too was way above the expected rise of 0.2%.
The performance relationship between small caps and their larger counterparts have clearly reversed course today. After significant outperformance the past two sessions, the small cap IWM is down 1.40%, while both the S&P 500 and NASDAQ 100 are relatively flat. The IWM broke out above 229.36 yesterday on the close, so that was our first key level of support. It failed to hold that support intraday, but the IWM is rallying back off of earlier lows and a close back above 229.36 would be a MAJOR win for small caps today. If that 229.36 level fails to hold on today's close, I'd look to gap support at 226.81 and the rising 20-day EMA, currently at 222.60, as the next big support levels. I believe they'll hold and I'll explain why.
There's no doubt that the July inflation data today caught many by surprise, myself certainly included. However, the market environment today is not one in which market participants have seemed to grow more cautious about future inflationary pressures. I find that very encouraging and bullish. Normally, a really bad inflation report would send growth stock investors heading for the exits in droves, but that's not the case today. The large cap iShares Russell 1000 Growth ETF (IWF, +0.06%) is outperforming the large cap iShares Russell 1000 Value ETF (IWD, -0.41%) by a fairly wide margin, which makes little sense if you're growing more cautious about inflationary pressures. In other words, the big Wall Street firms are buying growth names, relative to value names, today. That's quite shocking, if I'm being totally honest. I would not have expected that.
I believe the story being told is that Wall Street either believes this July PPI reading is a "one off" and unlikely to happen again OR Wall Street could be saying that they don't believe that inflation at the producer level will be passed onto the consumer. It's inflation at the consumer level that the Fed is most concerned about and we really didn't see any of that when the July CPI report was released on Tuesday.
In earnings news, Cisco Systems (CSCO, -1.44%) beat both its revenue and EPS estimates, while issuing guidance that was mostly inline with prior estimates. CSCO gapped down and tested its rising 50-day SMA before rallying somewhat. After the bell today, we'll get a glimpse into a key semiconductor stock, Applied Materials (AMAT, -0.21%). While we never know what might happen when earnings are released, I can tell you that, without question, AMAT is treated on Wall Street as the laggard in the semi equipment space. Both KLA Corp (KLAC) and Lam Research (LRCX) show much better relative strength, while AMAT has been steadily downtrending vs. its peer semiconductor group ($DJUSSC).
Happy trading!
Tom