Joey Solitro
Stocks were choppy Wednesday even as the latest inflation data all but solidified expectations the Federal Reserve will start cutting interest rates at its next meeting in September. The main question now is how large that rate cut will be.
According to CME Group's FedWatch Tool, futures traders are pricing in a 65% chance the central bank will lower the federal funds rate by a quarter-percentage point next month, up from yesterday's 47% probability. The odds of a 50 basis-point cut (0.50%) fell to 35% from Tuesday's 53%.
The revised outlooks follow this morning's release of the Consumer Price Index (CPI), which increased 0.2% in July vs the prior month. Year-over-year, headline CPI was up 2.9%, the smallest annual increase since early 2021.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Core CPI, which excludes volatile food and energy prices, was up 0.2% month-over-month and 3.2% year-over-year in July – also the slowest pace of annual growth in three years.
"Market participants are confounded following this morning's CPI report, which produced a morning reversal in equities and fixed income after yesterday's strong gains," says José Torres, senior economist at Interactive Brokers. "On the one hand, inflationary pressures are well contained near 3%, but on the other, shelter costs accelerated fiercely due to lighter mortgage rates and an underbuilt housing market."
As a result, the Nasdaq Composite pared most of an early lead to end the day up just 0.03% at 17,192. Meanwhile, the S&P 500 (+0.4% at 5,455) and the Dow Jones Industrial Average (+0.6% at 40,008) finished with more notable gains.
Kellanova stock pops on $36 billion buyout buzz
In single-stock news, Kellanova (K) shares jumped 7.8% after Mars confirmed it will buy the Pringles parent in an all-cash deal valued at nearly $36 billion, including debt. The bid from the privately held candy and pet food maker works out to $83.50 per Kellanova share, or a 12% premium to last night's close.
The deal "speaks to Mars' snacking ambitions," says Jefferies analyst Rob Dickerson, who has a Hold rating on Kellanova. "Mars has stated previously that doubling its snacking business is a goal over the next decade. By our math, a K acquisition would increase Mars' global and U.S. snacking businesses by roughly 40% and 60%, respectively."
Alphabet drops on more DOJ woes
Elsewhere, Alphabet (GOOGL) fell 2.3% after a Bloomberg report indicated the Justice Department is considering breaking up the company's Google division. This follows last week's court ruling that found Google has illegally maintained a monopoly in search and text advertising.
While any process of splitting up Google faces a long road in the legal system, Needham analyst Laura Martin (Buy) supports the move. "We believe that GOOGL is worth more in pieces than together, so we welcome regulators' attempts to break up GOOGL," she writes in a note to clients.
Southwest gears up for proxy fight
Meanwhile, Southwest Airlines (LUV) stock slipped 0.2% after a report in The Wall Street Journal suggested activist investor Elliott Investment Management is readying a proxy battle with the discount airline. Elliott plans to call for a special meeting and nominate 10 directors to Southwest's 15-member board.
"Although Elliott is likely able to convene a special meeting of the LUV board of Directors, we are doubtful that the 10 proposed (still unconfirmed) board members would be supported by the current shareholder base," said Jefferies analyst Sheila Kahyaoglu (Underperform, the equivalent of Sell). The analyst doesn't believe investors will vote out current leadership with a "go-forward plan" in place.
Related content
- The Fed Is About to Cut Rates. What Should Investors Do?
- Brinker International Stock Sinks as Higher Costs Eat Into Earnings
- Earnings Calendar and Analysis for This Week
-
Stock Market Today: Trump Retreats, Markets RejoiceStocks rally, yields soften, the dollar rises, and even beaten-down names enjoy the wages of potential trade peace.
-
In Trump’s Economy Should 401(k) Savers 'Set It and Forget It?'It’s hard to bury your head in the sand when the markets are volatile. Here’s when it makes sense and when it doesn’t.
-
Stock Market Today: Trump Retreats, Markets Rejoice
Stocks rally, yields soften, the dollar rises, and even beaten-down names enjoy the wages of potential trade peace.
-
Tesla Stock Pops as Elon Musk Promises DOGE Draw BackTesla reported a sharp drop in first-quarter earnings and sales, as the EV maker suffered a backlash to its CEO's political ambitions.
-
Bouncing Back: New Tunes for Millennials Trying to Make ItAdele's mournful melodies kick off this generation's financial playlist, but with the right plan, Millennials can finish strong.
-
Early-Stage Startup Deals: How Do Convertible Notes Work?Some angel investors support early startups by providing a loan in exchange for a convertible note, which includes annual interest and a maturity date.
-
Stock Market Today: Stocks Soar on China Trade Talk HopesTreasury Secretary Bessent said current U.S.-China trade relations are unsustainable and signaled hopes for negotiations.
-
How Can Investors Profit From AI's Energy Use?Global energy demand is expected to grow by leaps and bounds over the next several years as AI usage accelerates. Here's how to get a piece of the pie.
-
Can Trump Fire Powell? A Supreme Court Case Could DecidePresidential posts threaten to overwhelm decades of precedent and tradition, whatever the nine justices decide.
-
What Are AI Agents and What Can They Do for You?AI agents promise to be the next big thing in artificial intelligence, but what exactly do they do?
