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Investing.com -- The July Producer Price Index surged at the fastest monthly pace since March 2022, rising more than four times the consensus estimate, a move Sevens Report says “threatens multiple pillars” of the 2025 stock market rally.
Sevens noted that the spike “poses a threat to several ‘pillars’ currently supporting” equities, beginning with the expectation that inflation will keep drifting toward the Federal Reserve’s 2% target.
Historically, headline PPI “has a strong tendency to lead CPI,” meaning the July jump could signal consumer inflation will “reaccelerate higher in the next two-to-six months,” a risk not priced in with stocks at record highs.
The second pillar at risk is the assumption that the Fed will resume rate cuts in September, according to Sevens.
The firm warned that a PPI rise that precedes a higher CPI could present a “mandate dilemma,” especially after a weaker-than-expected July jobs report.
Rate-cut expectations have eased labor market concerns in recent weeks, but “higher inflation challenges the case for rate cuts this fall.”
The third pillar, strong corporate earnings growth into 2026, could also be undermined. Sevens said evidence of “suddenly higher input costs challenges the thesis that earnings will be as high as broadly expected,” with margins likely to compress.
If companies pass on price increases to protect profitability, that would “result in upside pressure on consumer inflation measures.”
“Bottom line,” Sevens wrote, “yesterday’s hot PPI report presents a multi-faceted threat” to the rally, with rising producer prices threatening profits while increasing the odds of stagflation if the labor market weakens further. The S&P 500’s 22X multiple, they warned, could be “well over their skis.”