CPI Report Confirms Our Suspicions

Heading into Wednesday morning’s September Consumer Price Index report, our suspicion based on previously received data was that the latest look at inflation ran the risk of coming in stronger than the market expected.

That’s exactly what we saw in both the headline and core CPI September figures with the former stepping up to 3.7% on a year-over-year basis versus 3.4% in August, while the core figure climbed to 2.6% from 2.4% in August. The sequential figures for both inflation metrics were also ahead of the market’s expectation.

The follow through as the market comes around to recognizing that inflation tailwinds are blowing harder than it thought is that equity futures have turned down, while Treasury yields have turned up, with the 10-year yield back over 5.3%. So far, we haven’t seen any real movement in the rate hike probabilities for October or December Fed policy meeting tracked by the CME FedWatch Tool, but it may take some time for that to flow through to the model. We’ll be sure to check back later on Wednesday morning and again in the afternoon.

Here’s the thing: If we follow the September PMI data from ISM and S&P Global, odds are it means we will see another step up in the September Producer Price Index data due on Thursday. Walking into Wednesday’s September CPI data, the market consensus called for flat to down figures headline and core PPI for September:

September PPI: 5.3% year over year versus 5.4% in August

September core PPI: 4.4% versus 4.6% in August

As we pointed out in our opening comments on Thursday morning, core PPI has been running over 4% on a year-over-year basis since April. With that trend at least continuing in September and likely heating up further during the month, barring any collapse in oil and related energy prices, inflation pressures will continue to ripple through the economy, especially as companies look to protect margins where they can.

On Tuesday, when we reviewed quarterly results from Goldman Sachs (GS) and JPMorgan (JPM), we shared that JPMorgan’s outlook that included one Fed rate hike in December and two more in the first half of 2027. While we won’t say those hikes are foregone conclusion, the probability is certainly rising with the ultimate path for three potential rate hikes being determined by what happens on the energy front.

For now, though, with a market that is now starting to question H2 2026 and 2027 consensus EPS expectations for the S&P 500, this inflation “revelation” is likely to rescind some of the recent gains. The line for the S&P 500 that we will be watching is the 50-day moving average near 7,707, while for the Nasdaq Composite it’s near 26,626.

In all likelihood, the move up in yields will weigh on tech and tech-adjacent names as well as small-cap stocks. That explains why we are not pulling the trigger to pick up more shares of Applied Materials (AMAT) following its vibrant multi-year outlook issued on Tuesday and ASML’s (ASML) multi-year order book comments issued on Wednesday morning.

On Tuesday, we shared that for AMAT, we are closely following them relative to the 200-day moving average near $436 and that remains the case. We are watching similar levels for others in the Portfolio that we have room to grow our exposure but given our comments above about the September PPI report on Thursday, more than likely we will wait on the sidelines at least until those results are out and the impact reflected in the market.

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At the time if publication, TheStreet Pro was long AMAT.