The S&P 500 was trading 0.3% lower as of 2:08 p.m. in New York, erasing earlier gains as Brent crude oil bounced above $88 per barrel. Energy, utilities, and industrial stocks were all higher, while large-cap technology shares were the biggest drag on the index. The technology-heavy Nasdaq 100 declined 0.4%. 

Nationwide Funds Group Chief Strategist Mark Hackett said lack of progress on a peace deal in Iran and rising oil prices put “some modest pressure” on stocks “but relative to last week’s rally, investors are taking the news in relative stride.” 

Tuesday’s choppy trading comes ahead of closely watched consumer and producer price data that will help assess the probability of a Federal Reserve interest rate hike in September. The recent rise in oil prices has markets pricing back a nearly 50% chance of a rate hike, according to data compiled by Bloomberg.

Analysts remain split on the near-term outlook for inflation and rates. Douglas Beath, global equity strategist at Wells Fargo Investment Institute, cautions that “elevated refined energy product prices and some increasing stickiness in core services – especially rents and medical care – make a less sanguine near-term inflation outlook.”

Citigroup analyst Andrew Hollenhorst expects CPI data to show signs of cooling in prices outside of energy, putting the focus back on domestic economic drivers.

Economists expect the US consumer price index to have risen 0.1% in July following a 0.4% decline in the prior month, according to the median projection in a Bloomberg survey of ahead of Wednesday’s Bureau of Labor Statistics release. Bloomberg Economics projects that core CPI may fall to its lowest year-over-year reading since March 2021. They expect that energy should subtract 11 basis points from the headline. 

“Investors are increasingly pricing a scenario in which inflation continues to ease, the Fed remains patient and earnings growth justifies elevated valuations,” writes Daniela Hathorn, a senior market analyst at Capital.com.

While another benign CPI report would reinforce that narrative and extend the rally a hotter-than-expected reading would push Treasury yields and the US dollar higher, she said, “forcing markets to reconsider whether the recent optimism around policy and valuations is justified.”

As the specter of rising interest rates and hostilities in the Middle East remain wildcards, skeptics are holding firm. Data from the American Association of Individual Investors show the number of bears in the stock market has outnumbered bulls in 20 of the past 25 weeks, a degree of persistence last seen in the aftermath of US President Donald Trump’s rollout of global tariffs. 

National Federation of Independent Business Tuesday released its Small Business Optimism index which indicated that US small business optimism rose in July to its highest level in a year. The survey also found that the net share of US small businesses planning to add jobs jumped to the highest level since October 2022, while indicating easing inflation concerns. Meanwhile, US sales of existing homes fell to a three-month low in July as elevated prices and mortgage rates continued to weigh on the housing market. 

Coreweave Inc. and Super Micro Computer will release earnings post market Tuesday. Coreweave’s shares have swung wildly since their IPO last year, and the latest downturn started after the company’s first-quarter earnings report in May. The company projected that the benefits of capital expenditures should start showing up in the second half of this year, making management’s forward guidance even more crucial than they’ve ever been.

According to Bespoke Investment Group, technology stocks are raising guidance at a higher pace than any other sector this earnings season. 

Sectors to Watch

• Energy stocks extended gains as the Strait of Hormuz remains shut
• Hyperscaler infrastructure companies as Super Micro and Coreweave report earnings this afternoon. The two have climbed on TSMC’s print
• Sneaker stocks are under pressure after On Holding AG reported disappointing 2Q sales and cut its annual topline projection. Peers including Nike, Puma, and Adidas are also lower; Under Armour received a downgrade from Barclays Plc