U.S. PPI Eases, S&P Reaches New High as Storage and Software Stocks Surge

Article by: Tide Research

U.S. July PPI data showed inflation cooling, compounded by falling oil prices, further narrowing market expectations for rate hikes and boosting risk appetite in U.S. equities. All three major indices closed higher: the S&P 500 rose 0.65% to 7,798.99, setting a new all-time high; the Nasdaq Composite gained 0.81% to 26,803.03; and the Dow Jones Industrial Average increased 0.13% to 53,885.10. The VIX stood at 14.94, up 5.05%. Most large tech stocks advanced, with Tesla leading the Magnificent Seven, rising over 3.5%. The storage sector surged across the board, with SanDisk climbing more than 13%. The Nasdaq China Golden Dragon Index fell 1.84%, with JD.com dropping over 7%, as Chinese ADRs underperformed the broader market. Bitcoin traded at $64,500, and Ethereum at $1,900. The positive impact of cooling inflation has been fully priced in; after the S&P’s new high, capital is seeking its next direction.

In the U.S., the year-over-year increase in the July PPI narrowed to 4.7%, with declining energy costs serving as the primary drag. Following the stronger-than-expected cooling of inflation, markets no longer fully anticipate a Fed rate hike this year. The yield on the two-year U.S. Treasury, sensitive to interest rates, fell 4.82 basis points, while the yield on the 10-year U.S. Treasury declined 4.57 basis points.

However, divisions within the Federal Reserve are growing. Barkin supports holding rates steady, while Harker insists on raising rates. Under Walsh’s leadership, the Fed is undergoing a recalibration of its policy framework, and public disagreements among officials have increased uncertainty surrounding the September meeting.

The auction yield for 30-year U.S. Treasuries reached its highest level since 2001, coinciding with weak demand and declining short-term rates—a shift in the yield curve shape warrants attention.

Storage chip stocks were the standout performers on Thursday. SanDisk rose over 13%, Western Digital and SK Hynitz gained more than 7%, and Seagate Technology climbed nearly 5%.

SanDisk presented long-term high-growth targets at its Investor Day, expecting revenue to grow at a mid- to high-double-digit rate for fiscal years 2028 through 2030, with a margin target as high as 80%. Following the announcement, SanDisk's stock surged nearly 20% during trading. Amid ongoing upward revisions in AI hardware valuation metrics, SanDisk addressed market skepticism about the sustainability of its growth with clear long-term financial goals, prompting investors to vote with their capital.

The collective strength in the storage sector is also supported by industry fundamentals. Demand for AI-driven HBM remains robust, and although there is divergence in sentiment regarding general-purpose memory chips, long-term guidance from leading companies has temporarily overshadowed short-term concerns.

Amid acquisition rumors, Workday surged as much as 30% on Thursday, driving a broad rally in software stocks. Reports indicated that Silver Lake plans to acquire Workday, causing the technology software ETF iShares to rise over 3%.

The rise in software stocks contrasts sharply with the recent trend of AI hardware stocks declining despite beating earnings expectations. As the S&P reaches a new all-time high, capital is shifting toward the software sector, which offers relatively lower valuations and potential merger-and-acquisition catalysts. If the acquisition rumors surrounding Workday materialize, they could spark renewed expectations for consolidation within the software industry.

Anthropic is also making big moves ahead of its IPO, planning to acquire chip-optimization company Decart AI for $6 billion. Investors are betting that its valuation could double, or even reach a $2 trillion valuation at IPO, potentially becoming the largest IPO in history. Funding momentum in the AI primary market continues to rise; whether secondary market pricing can keep pace is a key variable to watch.

The Wind U.S. Tech Seven Giants Index rose 0.74% on Thursday. Tesla led gains, climbing over 3.7%, while Google A rose about 0.7%, NVIDIA increased approximately 0.3%, and Microsoft, Amazon, Apple, Meta, and others all closed slightly higher.

Chinese stocks continued to underperform. The Nasdaq China Golden Dragon Index fell 1.84%, with JD.com dropping over 7% and Pinduoduo declining more than 5%. JD.com’s Q2 revenue decreased nearly 3% year-over-year but still exceeded expectations, and its operating profit turned positive year-over-year. During the earnings call, management indicated that a profit inflection point has been reached, food delivery losses have narrowed by more than 50%, and retail business is expected to return to positive growth in Q3. Despite improving fundamentals, the stock price continued to decline, as global investors remain cautious toward Chinese equities.

Crude oil fell over 2% on Thursday. Iran dismissed Trump’s remarks, asserting full control over the Strait of Hormuz. The previous consecutive price increases were followed by a profit-taking correction on Thursday, rather than a substantive easing of geopolitical risks.

Spot gold fell 1.34%, and spot silver dropped 1.43%. After the PPI data release, copper in New York briefly reversed losses in a V-shaped pattern but later retreated from its daily high, closing down 0.35%. Although easing inflation and reduced expectations for rate hikes should have supported gold prices, gold declined as the market reassesses the relative attractiveness of various assets following the S&P 500’s new high.

The market's focus on Friday is on two fronts.

First is the University of Michigan’s preliminary Consumer Sentiment Index. Since the PPI has already confirmed that inflation is cooling, if consumer sentiment data also indicates weakening economic expectations, market expectations for a September rate hike may further decline, causing U.S. Treasury yields to continue falling. If consumer sentiment comes in unexpectedly strong, it could trigger a repricing of the “economy not overheating, inflation not coming down” narrative.

Second, follow-up statements from Federal Reserve officials. The divergence between Barkin and Harker has become public; if more officials join the "hold steady" camp, the probability of a September rate hike will continue to decline. If hawkish voices regain dominance, the optimism from Thursday may be partially revised.

The S&P 500 has reached a new all-time high, and cooling inflation has provided reason for the market to continue rising, but new catalysts are needed after reaching this peak. Friday’s data and speeches will determine whether the rally continues or if a period of consolidation begins.