Stocks advanced on Thursday as a softer-than-expected July PPI report further eased Fed tightening concerns, while strength across mega-cap technology helped lift the S&P 500 to fresh record territory. The S&P 500 (+0.7%) crossed 7,800 for the first time and notched record intraday and closing highs, while the Nasdaq Composite (+0.8%) outperformed and the DJIA (+0.1%) eked out a modest gain.

July PPI was unchanged (Briefing.com consensus: 0.1%), while core PPI increased 0.2% (Briefing.com consensus: 0.3%), leaving both measures slightly below expectations despite modest upward revisions to the prior month's readings. Coming on the heels of Wednesday's in-line CPI report, the data reinforced the market's increasingly favorable view of the policy outlook. The shift was evident in fed funds futures, with the probability of a 25-basis-point rate hike at the September FOMC meeting now at 34.6%, according to the CME FedWatch tool. That compares with 40.6% just before this morning's PPI release and 55.0% a week ago.

The friendlier rate backdrop helped fuel another strong showing from growth stocks. The information technology sector (+1.0%) finished among the leaders, with memory stocks driving much of the early strength following positive takeaways from Sandisk (SNDK 1528.11, +183.82, +13.67%) investor day. Sandisk and Western Digital (WDC 487.29, +33.19, +7.31%) were among the top-performing S&P 500 components, while SK hynix Inc. (SKHY 165.65, +11.24, +7.28%) extended its August rebound and moved back toward its $170 July 10 IPO opening price after falling to post-IPO lows late last month.

Strength across the semiconductor group faded considerably during the afternoon, however, leaving the PHLX Semiconductor Index up just 0.5% after gaining more than 2.0% earlier in the session. Coherent (COHR 327.35, -28.29, -7.95%) was a notable laggard within the group following its earnings report. More broadly, the semiconductor retreat coincided with a sharp pickup in software stocks, suggesting some rotation within technology during the afternoon. The iShares Expanded Tech-Software ETF (IGV) jumped 3.1%, helped by an impressive surge in Workday (WDAY 206.45, +31.16, +17.78%) after Reuters reported that Silver Lake is in talks to acquire the company.

Mega-cap stocks also provided meaningful support after yesterday's weaker showing. The communication services sector (+1.6%) led all S&P 500 sectors as Meta Platforms (META 594.97, +16.12, +2.78%) ranked among the strongest "Magnificent Seven" names. Netflix (NFLX 78.24, +4.03, +5.43%) also advanced sharply following reports that Bill Ackman's Pershing Square fund established a new stake.

The real estate sector (+1.3%) was another standout as Treasury yields moved lower following the inflation data.

Oil provided another source of support, although the path lower was somewhat choppy. Crude moved around considerably without a meaningful geopolitical headline, contributing to the major averages' retreat from their opening highs before stocks recovered through the afternoon. WTI crude ultimately settled $2.20 lower (-2.6%) at $81.06 per barrel, while the energy sector (-0.1%) finished only modestly lower. 

The materials sector (-0.7%) was the day's weakest performer amid lower precious metals prices and weakness across fertilizer names.

Ultimately, Thursday's advance capped another constructive response to this week's inflation data, with softer producer prices further reducing expectations for additional Fed tightening and helping the S&P 500 establish fresh record highs. The afternoon rotation from semiconductors toward software kept technology firmly supportive even as the early chip rally faded, while lower Treasury yields and oil prices provided a favorable backdrop elsewhere in the market.

U.S. Treasuries took some solace in a July PPI report that reinforced the belief coming out of the July CPI report that the Fed won't be raising rates at its September FOMC meeting. The 2-year note yield settled down six basis points to 4.14%, and the 10-year note yield settled down four basis points to 4.64%. 

• Russell 2000: +23% YTD
• S&P Mid Cap 400: +18.4% YTD
• Nasdaq Composite:  +15.3% YTD
• S&P 500: +13.9% YTD
• DJIA: +12.0% YTD

Reviewing today's data:

• July PPI 0.0% (Briefing.com consensus 0.1%); Prior was revised to -0.1% from -0.3%, July Core PPI 0.2% (Briefing.com consensus 0.3%); Prior was revised to 0.4% from 0.2%
  • The key takeaway from the report is that, like the CPI, it was devoid of "new" inflation-baked surprises. Headline and core readings trended in the right direction of disinflation, which is an appeasement for today's trading dynamic, but of course the inflation rates themselves remain on the high side and need to come down much more to appease inflation hawks.
• Weekly Initial Claims 209K (Briefing.com consensus 205K); Prior was revised to 200K from 199K, Weekly Continuing Claims 1.777 mln; Prior was revised to 1.799 mln from 1.801 mln
  • The key takeaway from the report is the 4-week moving average for initial claims running below 200,000 (currently 199,000), which is an historically low number consistent with a labor market that is light on layoff activity.