Author: Tide Research
The U.S. July PPI indicated inflation is cooling, coupled with falling oil prices, market expectations for further rate hikes narrowed, and risk appetite in U.S. stocks rebounded. All three major indices closed higher, with the S&P 500 up 0.65% to 7798.99 points, closing at a record high; the Nasdaq up 0.81% to 26803.03 points; and the Dow Jones up 0.13% to 53885.10 points. The VIX rose 5.05% to 14.94. Most major tech stocks gained, with Tesla leading the "Magnificent Seven" with a gain of over 3.5%. The storage sector surged across the board, with SanDisk up over 13%. The Nasdaq Golden Dragon China Index fell 1.84%, with JD.com down over 7%, underperforming the broader market. Bitcoin was at $64,500, Ethereum at $1,900. The positive impact of cooling inflation was fully digested by the market, and following the S&P's new high, capital is seeking the next direction.
PPI Cools More Than Expected, Fed Divergence Emerges
The U.S. July PPI year-over-year increase narrowed to 4.7%, with falling energy costs being the main drag. After inflation cooled more than expected, the market no longer fully bets on a Fed rate hike within the year. The interest rate-sensitive 2-year Treasury yield fell 4.82 basis points, and the 10-year Treasury yield fell 4.57 basis points.
However, divergence within the Fed is widening. Barkin supports holding steady, while Harker insists on a hike. The Fed under Chair Wash is undergoing a recalibration of its policy framework, and public disagreements among officials have increased uncertainty surrounding the September meeting.
The 30-year Treasury auction yield hit its highest level since 2001, with weak demand signals appearing alongside short-end yield declines, making the shape of the yield curve worth watching.
Storage Sector Surges, SanDisk Sets Long-Term High-Growth Target
Memory chip stocks were the brightest spot on Thursday's market. SanDisk rose over 13%, Western Digital and SK Hynix gained over 7%, and Seagate Technology rose nearly 5%.
SanDisk presented long-term high-growth targets at its Investor Day, projecting mid-to-high double-digit revenue growth for fiscal years 2028-2030 and a profit margin target as high as 80%. Following the news, SanDisk's stock surged nearly 20% intraday. Against a backdrop of continuously re-rated valuations for AI hardware, SanDisk addressed market skepticism about "sustainability of growth" with clear long-term financial targets, and investors voted with their capital.
The collective strength in the storage sector is also supported by industry fundamentals. AI-driven HBM demand remains robust. While there are differing views on the near-term outlook for general-purpose memory chips, the long-term guidance from leading companies has temporarily outweighed short-term concerns.
AI Application Software Stocks Soar, Workday Surges Up to 30%
Driven by acquisition rumors, Workday soared up to 30% on Thursday, lifting the broader software sector. Reports indicated Silver Lake intends to acquire Workday, with the iShares Technology-Software Industry ETF rising over 3%.
The rise in software stocks contrasts sharply with the recent trend of AI hardware stocks "falling despite exceeding earnings expectations." At the S&P's record high, capital is starting to rotate into the software sector, which has relatively lower valuations and potential M&A catalysts. If the rumors of a Workday acquisition prove true, it could spark new consolidation expectations within the software industry.
Anthropic is also making major moves before its IPO, reportedly planning to acquire chip optimization company Decart AI for $6 billion. Investors are betting on its valuation doubling or listing at a $2 trillion valuation, potentially becoming the largest IPO in history. Fundraising fervor in the AI private market remains high, and whether public market valuations can keep pace is a variable to watch next.
Tesla Leads 'Magnificent Seven' with Over 3.5% Gain; China Stocks Underperform
The Wind U.S. Tech Seven Giants Index rose 0.74% on Thursday. Tesla led with a gain of over 3.7%, Google (Class A) rose about 0.7%, Nvidia rose about 0.3%, while Microsoft, Amazon, Apple, and Meta all closed slightly higher.
Chinese stocks continued to underperform. The Nasdaq Golden Dragon China Index fell 1.84%, with JD.com down over 7% and Pinduoduo down over 5%. JD.com's Q2 revenue fell nearly 3% year-over-year but still beat expectations, operating profit turned positive year-over-year, and the company stated on its earnings call that a profit inflection point has been reached, losses in the food delivery segment narrowed by over 50%, and retail business may return to positive growth in Q3. These fundamental improvements failed to stem the stock decline, indicating global capital remains cautious towards Chinese stocks.
Oil Falls Over 2%, Gold Pulls Back
Oil fell over 2% on Thursday. Iranian officials dismissed remarks from Trump, stating Iran has full control over the Strait of Hormuz. The price drop, following a series of gains, was more due to profit-taking rather than a substantial removal of geopolitical risks.
Spot gold fell 1.34%, spot silver fell 1.43%. Following the PPI data release, Comex copper initially recouped losses in a "V" shape but then retreated from daily highs, ending slightly down 0.35%. Cooling inflation and narrowing rate hike expectations should be positive for gold, but prices instead fell, indicating the market is reassessing the relative attractiveness of various assets after the S&P hit a record high.
Focus Today: Consumer Sentiment and Fed Speakers
The market's focus on Friday lies in two directions.
First, the preliminary University of Michigan Consumer Sentiment Index. PPI has confirmed inflation is cooling. If consumer sentiment data also shows economic expectations are weakening, market bets on a September rate hike may decline further, pushing Treasury yields lower. If consumer sentiment is surprisingly strong, it could trigger a repricing of the "economy not overheating, but inflation not coming down" narrative.
Second, follow-up remarks from Fed officials. The divergence between Barkin and Harker is now public. If more officials join the "hold steady" camp, the probability of a September hike will continue to fall; if hawkish voices regain dominance, Thursday's optimism may be partially corrected.
The S&P 500 is already at a record high. Cooling inflation gives the market a reason to continue higher, but new catalysts are needed after the new high. Friday's data and speeches will determine whether the market continues to break through or enters a period of consolidation.
