TLDR
- U.S. inflation rose 0.4% month over month and 3.4% year over year, pushing Fed rate hike odds to 85%
- Brent crude briefly hit nearly $110 a barrel before pulling back more than 3%
- Oracle reported 30% revenue growth and a $664 billion AI cloud backlog
- Adobe beat earnings but fell on soft guidance and ongoing AI competition fears
- The 10-year Treasury yield nearly touched 5%, a level that could pull money away from stocks
Inflation Data Pushes Fed Rate Hike Odds to 85%
U.S. inflation stayed elevated in August. The Consumer Price Index rose 0.4% month over month and 3.4% year over year.
Core inflation, which strips out food and energy, came in at 0.3% for the month. That was slightly above what economists had expected.
Following the report, futures markets moved to price in an 85% chance of a Fed rate hike at the September meeting.
Higher rates make borrowing more expensive for companies and put pressure on growth stock valuations.
Oil Briefly Hits $110 Before Pulling Back
Brent crude surged to just under $110 a barrel during the session, its highest level since May.
It then dropped more than 3% after reports emerged of possible negotiations around shipping routes in the region.
Despite the pullback, Brent is still on track for a weekly gain of more than 8%.
Supply concerns remain in place. Saudi Arabian output has been disrupted, tanker attacks have increased, and routes through the Strait of Hormuz and the Red Sea face ongoing risk.
Higher oil prices feed into inflation through fuel, transport, and manufacturing costs. That could keep central banks in a tighter policy stance for longer.
Treasury Yields Close In on 5%
The 10-year Treasury yield briefly touched 4.99%, its highest level in nearly three years, before easing back to around 4.93%.
When yields approach 5%, government bonds start to compete more directly with stocks for investor money.
Higher yields also raise borrowing costs across the economy and tend to put the most pressure on highly valued technology and growth shares.
Large government deficits, heavy bond issuance, persistent inflation, and high energy prices are all pushing yields higher.
Oracle Jumps After Reporting $664 Billion AI Cloud Backlog
Oracle was the standout story of the day. Quarterly revenue rose 30% to $19.3 billion, beating Wall Street expectations.
The company signed more than $30 billion in new AI cloud contracts during the quarter.
Oracle’s total remaining performance obligations, a measure of future contracted revenue, hit $664 billion.
Free cash flow came in at negative $5.4 billion. Analysts had expected a negative $9.6 billion outflow, so the result was better than feared.
Oracle shares rose around 3% on Friday. The results eased concerns that the company’s heavy data center investment was becoming too costly to sustain.
Adobe Beats Earnings but Falls on Soft Guidance
Adobe reported quarterly revenue of $6.76 billion and adjusted earnings of $6.13 per share, both ahead of expectations.
Annual recurring revenue from Adobe’s newer AI-first products more than doubled year over year.
Despite the beat, the stock fell. Management issued fourth-quarter revenue guidance that came in slightly below what analysts were expecting.
Investors also remain cautious about Adobe’s longer-term competitive position. Tools from Canva and Figma are seen as growing threats to its core creative software business.
The gap between Oracle and Adobe reflects a wider trend. Companies with direct exposure to AI infrastructure are being rewarded. Companies still working through disruption fears face more scrutiny.
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