September PPI surged 1.3% MoM versus 0.5% expected, while core PPI rose 0.7% against a 0.3% forecast.
Yet $SPDR S&P 500 ETF Trust(SPY)$ finished Thursday up 0.28%. The key was what happened to Treasury yields after the data.
Three things explain the disconnect:
1️⃣ Yields moved in the opposite direction. The 10-year Treasury yield fell roughly 11 basis points, easing pressure on equity valuations. Hot inflation can be bearish for stocks, but if yields fall instead of rise, the immediate reaction can be different.
2️⃣ The market may be pricing in slower growth, not just higher inflation. Retail sales were stronger overall, but the control group missed expectations. Investors may be weighing the risk that tighter financial conditions weaken growth, making bonds more attractive even as inflation remains elevated.
3️⃣ The rally was broader than mega-cap tech. Equal-weight $S&P 500(.SPX)$ stocks and small caps outperformed, while the $NASDAQ 100(NDX)$ remained slightly negative. That suggests Thursday’s $SPY gain was not simply a rebound in the largest technology stocks.
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