Markets Update - 8/12/26
A look at what happened today impacting US equity, Treasury, and selected commodity markets, and what to watch for tomorrow
Quick Summary:
US equity indices opened Wednesday’s session higher as they reacted to a mostly in-line CPI report which saw a modest drop in Fed rate hike expectations and Treasury yields.
The indices would trade in relatively narrow ranges led by a push higher from the small-cap Russell 2000 index +0.6%. The S&P 500 rose 0.3%, the Nasdaq Composite +0.5%, and the Dow Jones Industrial Average finished just in the red.
The inflation report was the main macro catalyst. Headline CPI increased +0.1% and core CPI rose +0.2%, both matching expectations, while the year-over-year readings eased slightly from June, with the core y/y slowing to the least since March 2021. That helped reduce immediate concerns about another Fed hike, with the CME FedWatch tool showing the odds of a September hold rising to roughly 60%.
With CPI not changing the broader setup, attention shifted back toward AI and semiconductor-related names. Technology shares boosted the market as the PHLX Semiconductor Index jumped +2.5% after strong reactions to earnings from CoreWeave and Super Micro Computer. CoreWeave shares jumped 18% after the cloud infrastructure mainstay’s second-quarter adjusted operating income margin of 5% exceeded expectations, while its revenue doubled from a year ago. Super Micro Computer added 17% following a strong earnings and revenue forecast for the first quarter.
But it wasn’t all an AI story with eight of eleven sectors finishing higher and the equal-weighted S&P 500 at another all-time high.
Also helping the broader market, unlike most of the past week, oil and the US-Iran backdrop were not major drivers. WTI crude finished lower at around $83, with few meaningful new developments around the Strait of Hormuz.
The market now turns to Thursday’s PPI report, with investors still balancing the softer jobs backdrop, calmer CPI data, elevated oil prices, and Fed hike odds that remain lower but certainly not eliminated.
Some market commentary:
On the CPI print:
“The big surprise with a report that had no surprises is that a situation where inflation isn’t reaccelerating, coupled with the most recent, weak jobs report gives the Fed more time to wait,” said Chris Zaccarelli at Northlight Asset Management. Typically, the market would be buoyed by the thought of rate cuts, but in a world where many are expecting rate hikes, anything that can delay – or squash the need for – rate hikes will be viewed positively, he added.
“Contained core inflation adds to the encouraging signs in last month’s release of a moderation in underlying inflation, helping strengthen the case for a September hold,” said Lindsay Rosner at Goldman Sachs Asset Management.
“In-line inflation will keep the ‘no need to hike rates’ narrative that took hold after last week’s jobs report intact,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “There will be another round of inflation data before the September FOMC meeting, so the storyline could still change. But unless those numbers tell a much different story, the Fed will likely still be in a position to leave rates unchanged next month.”
“Wednesday’s CPI was in-line with expectations, which is welcome news, but it is becoming clear that the CPI data is moving in lockstep with oil prices, and the Federal Reserve has no control over the Strait of Hormuz, and this paints a long and unknown road for inflation to get back towards the 2% target,” said Skyler Weinand at Regan Capital.
“July’s CPI report was modest enough to lower chances of a September rate hike, but not low enough to write it off completely. With core CPI matching its five-year low from February, and July payrolls declining, it’s hard to make an urgent case to hike.” — Anna Wong and Troy Durie
Seema Shah, chief global strategist at Principal Asset Management:
“Today’s CPI print, alongside July’s drop in payrolls, should lower expectations for a September hike, but does not put it completely to bed. Unless August’s inflation print also shows subdued price pressures, a September hike is a clear risk. With the Strait of Hormuz still shut, upside inflation risks will remain top of mind for the foreseeable future. We expect no change in rates this year but cannot dismiss the elevated risk of a hike later in the year if energy disruptions are sustained, while the threat of an AI-induced rise in inflation also cannot be ignored.”
“I think the combination of CPI and payroll takes September off the table,” Sage Advisory’s Rob Williams said. “The markets are gravitating towards December because you need a little space and have a couple more prints of both employment and CPI.”
In today’s Markets Update:
A deeper look at Wednesday’s stock and sector breakdown, including the return of Technology leadership with renewed AI and semiconductor strength, mixed megacap participation, and the continued relative strength in small caps and the equal-weighted SPX.
A look at after-hours movers and selected corporate headlines from CNBC and Bloomberg, including AI infrastructure, software, restaurants, and selected earnings reactions.
Updated technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.
A review of market breadth and participation, including large individual winners and losers, the Russell 2000’s new high, and the equal-weighted SPX’s continued relative strength.
A look at the rates and Fed backdrop, including Treasury yields, updated Fed hike expectations, the CPI reaction, and CPI-related analysis from Morgan Stanley’s Gapen and JPMorgan.
A look at volatility and market structure, including the declines in VIX, VVIX, and 1-day VIX.
A review of cross-asset trends, including WTI crude, crude inventories, the dollar, gold, copper, natural gas, and bitcoin.
Yardeni on the S&P outlook and earnings, Citadel’s Rubner on flows and the market setup, Daily Chartbook/S&P on institutional risk appetite, and BoA on hedge-fund buying.
A wrap-up on the CPI clearing event, the AI trade, breadth, yields, and the near-term market setup.
A look ahead to Thursday’s calendar, including US economic data, Fed speakers, Treasury auctions, SPX earnings, and ex-US highlights.
