What Happened?
A number of stocks jumped in the afternoon session after an unexpected decline in the Producer Price Index (PPI) fueled optimism for potential interest rate cuts.
The PPI, a measure of wholesale inflation, edged down 0.1% in August, according to the U.S. Bureau of Labor Statistics. This surprise drop soothed investor concerns about persistent inflation and strengthened bets that the Federal Reserve will resume cutting interest rates. Lower interest rates can stimulate the economy by making borrowing cheaper for consumers and businesses, which often leads to increased consumer spending. Following the report, market participants are now almost fully pricing in three rate reductions in 2025, which could provide a significant tailwind for consumer-focused companies.
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:
- Sports & Outdoor Equipment Retailer company Dick's (NYSE: DKS) jumped 3.3%. Is now the time to buy Dick's? Access our full analysis report here, it’s free.
- Apparel Retailer company American Eagle (NYSE: AEO) jumped 6.3%. Is now the time to buy American Eagle? Access our full analysis report here, it’s free.
Zooming In On American Eagle (AEO)
American Eagle’s shares are very volatile and have had 28 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 1 day ago when the stock dropped 3.4% on the news that a significant downward revision of U.S. job creation data raised concerns about the health of the economy.
The Labor Department reported that employers added 911,000 fewer jobs from April 2024 through March 2025 than initially estimated. This revision brings the average monthly job gains during that period down significantly, suggesting a cooler labor market. The downgrades were widespread across various service sectors. The largest revisions were seen in leisure and hospitality, which added 176,000 fewer jobs than first reported, followed by professional and business services and retail. Such data is closely watched by investors and economists as it can influence the Federal Reserve's decisions on interest rates.
JPMorgan Chase CEO Jamie Dimon added that the U.S. economy is "weakening," though he stopped short of predicting a recession. "Whether it's on the way to recession or just weakening, I don't know," he said. Dimon's remarks are closely watched, given his influence as head of one of the nation's largest banks.
American Eagle is up 11.9% since the beginning of the year, but at $19.18 per share, it is still trading 14.4% below its 52-week high of $22.39 from September 2024. Investors who bought $1,000 worth of American Eagle’s shares 5 years ago would now be looking at an investment worth $1,455.
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