Invest1 publisher3 min readPublished
Traders put 70% odds on a Fed hike after an in-line August PPI print
Brent rose 6% to $107 with routes through Hormuz and the Red Sea disrupted, and the 30-year Treasury yield reached its highest in more than 19 years. Traders now put the odds of a hike on Wednesday at 70%.
The Investor · Invest desk
What happened
- Reuters reported that US stocks ended lower on Thursday after August producer price data and surging oil prices stoked worries the Federal Reserve will raise rates at next week's meeting.
- The S&P 500 fell 0.58% to close at 7,591.75 points, the fourth session in a run that has taken 2% off the index, its deepest four-day loss since June.
- Thirty-year Treasury yields hit their highest in more than 19 years, 10-year yields their highest in nearly three years, and 2-year yields their highest in more than two years.
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Why it matters
- decision Friday's August consumer price data arrives before Wednesday's decision, so anyone holding the 30% side of the FedWatch reading is making that call on a single print.
- cost On Mayfield's description of the channel, the bill for tightening against an energy-led price rise falls on companies' operating costs and on consumer borrowing.
- constraint A rate rise adds no barrels: the energy component here is set by the Hormuz and Red Sea routes. That leaves the Fed tightening only the domestic side of the problem.
- contradiction The sector ranking sits awkwardly with the duration story, because materials led the decline ahead of information technology and the biggest single gainer Reuters named was Apple on an iPhone launch.
An in-line producer price print moved the hike odds six points. August PPI rose about as expected on the month, with the rebound sitting in the cost of energy products [8]. The CME FedWatch reading still went from about 64% before the report to 70% for a rise of at least 25 basis points on Wednesday [10][1]. Brent added 6% on the day to $107 with supply routes through the Strait of Hormuz and the Red Sea disrupted by the US-Israeli war on Iran [4]. Run that percentage backwards and Thursday opened with crude near $101 [2].
Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky, said: "Yields are going up at the short end of the curve because the Fed is probably going to hike in the next couple months. Yields are going up at the long end of the curve because of debt and deficit issues, and sticky inflation." [6] On the equity side he said: "Higher yields are a negative for the equity market. They lower valuations and they make it more expensive to operate a business, and more expensive for consumers to exist in the world." [7]
The sector table cuts against that second quote. Nine of eleven sectors fell, the deepest being materials at 1.45%, ahead of information technology at 0.91% [13]. Nvidia lost 2.3% and Micron 4.7% [11]. The largest single move Reuters named was Apple, up 3.6% the day after it launched a $1,999 iPhone [12].
The scale is modest. The S&P 500 closed at 7,591.75 after a 0.58% decline, with the Nasdaq at 26,081.73 and the Dow at 52,064.10 [2][3]. The index is nearly 3% below its August 13 record close of roughly 7,825, and it is still up 11% in 2026 [15][3]. The 2% lost over four sessions has handed back close to a fifth of the year's gain [14][4]. Volume was 15.1 billion shares against a 14.9 billion average over the previous 20 sessions, about 1.3% heavier [16][5].
In my view the bond market has repriced and the equity market has barely started. The cross-section is the reason: a de-rating driven by 30-year yields at their highest in more than 19 years [5] would not normally leave materials at the bottom of the sector table and Apple at the top [13][12]. Two other readings are live. A soft August consumer price print on Friday [9] takes the six-point move in hike odds back out [1], and Thursday was then an oil headline with an equity give-back attached. Or the long end keeps climbing on the debt and deficit issues Mayfield named [6], in which case Wednesday's decision settles only one end of the curve. What would prove me wrong is a deeper equity decline with information technology at the bottom of the table and the chipmakers leading it down; that pattern would make the four-session 2% the first leg of the valuation compression Mayfield described [7][14][13][11].
What to watch
- Friday's August CPI print: a soft reading pulls the 70% hike probability back toward the 64% Thursday started at.
- Whether the 30-year yield keeps climbing after Wednesday's decision. If it does, that points at the debt and deficit leg Mayfield named.
- Brent back toward the $101 it opened Thursday at if the Hormuz and Red Sea routes clear.