One day after a 3.7% CPI print, the producer side came in hotter. The September PPI landed Thursday, and the equity tape did something odd with it: the Dow rallied while chips sold off.
How hot was the September PPI?
Final-demand prices rose 1.3% in September, seasonally adjusted, after 0.5% in August and 0.2% in July. The BLS says it is the largest monthly advance since 1.7% in March 2022. Over 12 months, final demand is up 6.3%, unadjusted.
Economists had been looking for roughly 0.5% to 0.6% on the month and about 5.5% on the year, depending on the survey. The miss was not small.
Where did the increase come from?
Final-demand energy jumped 10.8% in the month and pushed goods up 2.6%. Services rose 0.8%, helped by a 3.4% jump in transportation and warehousing and a 1.4% rise in trade margins.
Strip out foods, energy and trade services and the core measure still rose 0.5% on the month and 5.0% over 12 months. Energy did most of the work. It did not do all of it.
Why does a 1.3% producer print matter after CPI?
Consumer prices were already running at 3.7% annually in September. PPI is upstream. Producer costs that rise faster than consumer prices either squeeze margins or get passed through later, and a 5.0% core PPI year-on-year gives companies plenty of cost to pass through.
That is the problem for the Fed. The next FOMC decision is October 28, and a hike is now a live conversation, not a tail risk. Two hot prints in two days do not make that conversation shorter.
What did stocks do with it?
Thursday was a rotation day, not a risk-off day. The Dow added 556.21 points, or 1.08%, to 52,177.69. The S&P 500 gained 0.33% to 7,744.06. The Nasdaq Composite finished up 0.08% at 26,713.03 after being down as much as 1.4% early.
Healthcare led, up 1.84% as a sector, with Eli Lilly up more than 3%. Nvidia slipped 1.8% after TSMC sounded cautious on 2027 despite a sixth straight record quarterly profit.
What happened to Treasury yields?
The 10-year closed near 5.105%, its lowest in about three weeks, per Investing.com, though intraday tables showed slightly lower. Sources differ on the exact close, so treat it as roughly 5.1%.
Bonds rallied on a hot inflation print. That tells you buyers were treating the sell-off in chips as a flight to duration, not a vote on inflation. Whether that holds is a separate question.
What is on the calendar today, October 16?
Today is monthly options expiration. Import and export prices for September are scheduled for 8:30 AM ET, and industrial production and capacity utilization follow at 9:15 AM ET. With a 1.3% PPI still fresh, the import price number gets more attention than it normally would.
Expiration days can pin or whip single names and indexes, and a rotation market is exactly where dealer hedging gets noisy. Watch the chip names that gapped on Thursday for the first sign of which way that goes.
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