After the PPI print, the CME Fed Watch climbed to three rate hikes (2 in 2026 and one in 2027). Most Wall Street firms came into the session thinking the Fed will hold this year, but Bank of America (BAC) has been loud about expecting three hikes in 2026.  Conversely, Jefferies (JEF) is calling for a rate cut in December.

Tough Sledding

Only two of eleven sectors finished higher, with Materials (XLB) in last.

Factors

There was nowhere to hide, as 65% of the S&P 500 finished in the red.  Going deeper, all the factor boxes also finished in various hues of red.

Momentum took the hardest hit, followed by growth and quality (I’m not sure why quality can’t gain traction after such a horrific streak of disappointment).

The Latest AI Scare

A 26-year-old kid who worked at Anthropic for a few weeks posted his fears that AI could one day “kill” people, which led to a whirlwind of interviews and discussions.  Ironically, his former boss at Anthropic put the number at 20% in a recent interview.  After the close, Jensen called “BS.”  I think it was an organized effort to spook the masses, many of whom are already on tenterhooks.

The drawdown in technology momentum stocks is epic. There is gold in that car wreck.

Oracle

Oracle (ORCL) posted results that beat on every level and raised full-year guidance on revenue and earnings. The stock edged higher but not enough to cover the loss during the trading session.

Remaining performance obligations surged again to more than $600 billion.

Drum Roll

The CPI report will likely seal the deal for the September FOMC decision.  Bloomberg sees the numbers running hotter than recent trends.

9-11

If you can, say a prayer for the victims and their families today – the 25th anniversary of the 9-11 terrorist attacks.

Today’s Session

CPI came in line with estimates, although some are saying “super core” was hot. The knee-jerk reaction saw futures move lower, but early gains are being recaptured, and we are opening above pre-opening highs.

This is impressive considering odds of a rate hike have spiked to 90%.

Lots of “bad news” has been baked into this market.  Moreover, a rate hike isn’t an automatic rally killer.

Core CPI was 2.4% from a year ago, down from 2.5% the prior month.

I’m digging this action; let's see if it holds up.

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