What Happened?
A number of stocks jumped in the afternoon session after an unexpected drop in the Producer Price Index (PPI) for August, signaled easing inflation and raised expectations for a potential Federal Reserve interest rate cut.
The U.S. Bureau of Labor Statistics reported that the PPI, which measures wholesale prices, edged down 0.1% last month, contrary to analyst expectations for a 0.3% rise. This data gives the Federal Reserve more flexibility to consider lowering interest rates to stimulate the economy. According to the CME FedWatch Tool, the probability of a quarter-point rate cut at the next Fed meeting has surged to 90%. Lower interest rates typically benefit the industrial sector by reducing borrowing costs for new projects and expansion, potentially leading to increased economic activity and demand for industrial goods.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Aerospace company Astronics (NASDAQ: ATRO) jumped 16.6%. Is now the time to buy Astronics? Access our full analysis report here, it’s free.
- Construction and Maintenance Services company Comfort Systems (NYSE: FIX) jumped 6.1%. Is now the time to buy Comfort Systems? Access our full analysis report here, it’s free.
- Engineering and Design Services company Sterling (NASDAQ: STRL) jumped 5%. Is now the time to buy Sterling? Access our full analysis report here, it’s free.
- Energy Products and Services company Quanta (NYSE: PWR) jumped 4.7%. Is now the time to buy Quanta? Access our full analysis report here, it’s free.
- HVAC and Water Systems company AAON (NASDAQ: AAON) jumped 5%. Is now the time to buy AAON? Access our full analysis report here, it’s free.
Zooming In On Astronics (ATRO)
Astronics’s shares are very volatile and have had 21 moves greater than 5% over the last year. But moves this big are rare even for Astronics and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 5 days ago when the stock dropped 3.4% on the news that a surprisingly weak August jobs report revealed the U.S. economy added far fewer jobs than anticipated. The Bureau of Labor Statistics reported that non-farm payrolls rose by just 22,000, significantly missing the 75,000 expected by economists.
Compounding the concerns, the unemployment rate climbed to 4.3%, its highest level in nearly four years. The report also included downward revisions to previous months' data, with June now showing the first net job loss since 2020. While a cooling labor market could encourage the Federal Reserve to cut interest rates, investors reacted negatively. The sharp slowdown in hiring sparked fears of a broader economic downturn, causing stocks to fall as the market weighed whether the Fed's potential actions would be enough to prevent a recession.
Astronics is up 181% since the beginning of the year, and at $44.43 per share, has set a new 52-week high. Investors who bought $1,000 worth of Astronics’s shares 5 years ago would now be looking at an investment worth $5,609.
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