Producer Price Inflation Was Much Hotter Than Expected. Stocks Still Climbed.

Stocks climbed on Thursday even though the Producer Price Index soared beyond economists' expectations.

The tech-heavy Nasdaq Composite edged up 0.08%, while the S&P 500 gained 0.33%, The Dow Jones Industrial Average overperformed as investors rotated out of the AI trade, climbing 1.08%.

Odds of a rate hike by the Federal Reserve edged down despite the PPI figure. Chances of a rate hike now stand at 27.1 %, more than six percentage points less than on Wednesday, according to the CME Group's FedWatch tool. Odds that the central bank will keep rates unchanged stand at almost 73%.

The producer price index clocked in at 1.3% last month and 6.3% on an annual basis. It was the largest 12-month increase since 2022. Economists expected for the monthly figure to stand at 0.6% and the annual one at 5.5%.

Soaring energy prices resulting from the war are playing an outsized role in the figure. Without food, energy and trade, the monthly PPI was 0.5% and the annual one 5%, according to the Bureau of Labor Statistics.

"Half of the September increase in the index for final demand goods can be traced to
prices for gasoline, which jumped 20.3 percent. The indexes for diesel fuel, fresh and dry vegetables, jet fuel, residential electric power, and crude petroleum also rose. In contrast, prices for chicken eggs dropped 39.7 percent. The indexes for thermoplastic resins and materials and for commercial electric power also declined," the report noted.

Investors reduced some tech-related positions over concerns related to overspending on artificial intelligence and a memory chip glut, as well as the possibility that Anthropic's quarterly revenue can't explain the massive spending on the AI industry.

The company reported $16.8 billion in third-quarter revenue and positive cash flow. Revenue increased approximately 45% from $11.6 billion in the second quarter, while the company also reported profitability on an adjusted basis for the second consecutive quarter. The figures were shared during a private investor presentation at Anthropic's San Francisco headquarters on Wednesday.

The company behind the Claude AI models generated $4.7 billion in revenue during the first quarter, before more than doubling that figure in the April-to-June period. Its latest results show that sales continued to increase between July and September, although at a slower quarterly rate.

The financial disclosures come as Anthropic prepares for a possible stock market debut in November. The privately held company has not announced a final IPO price or completed its planned public offering.