What Happened?

A number of stocks fell in the afternoon session after a hotter-than-expected wholesale inflation report fueled concerns about slowing consumer spending. The market was rattled by a Labor Department report showing the Producer Price Index (PPI), a measure of wholesale inflation, jumped 0.9% in July, significantly exceeding economists' expectations of a 0.2% rise. This was the largest monthly increase since March 2022, reigniting worries that businesses will be forced to pass higher costs on to consumers, who are already showing signs of price sensitivity. This inflation data has fanned concerns that U.S. tariffs on imported goods could start to translate into higher prices for shoppers. The inflation report landed amid growing evidence of consumer caution, with recent reports highlighting that shoppers are cutting back on non-essential spending, seeking out sales, and trading down to cheaper brands.

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:

• Apparel Retailer company American Eagle (NYSE: AEO) fell 4.6%. Is now the time to buy American Eagle? Access our full analysis report here, it’s free.
• Department Store company Kohl's (NYSE: KSS) fell 3.1%. Is now the time to buy Kohl's? Access our full analysis report here, it’s free.
• Specialty Retail company Petco (NASDAQ: WOOF) fell 4.2%. Is now the time to buy Petco? Access our full analysis report here, it’s free.
• Apparel Retailer company Abercrombie and Fitch (NYSE: ANF) fell 3.1%. Is now the time to buy Abercrombie and Fitch? Access our full analysis report here, it’s free.
• Discount Retailer company Burlington (NYSE: BURL) fell 3.2%. Is now the time to buy Burlington? 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 25 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 gained 7.3% on the news that markets continued to rally amid growing investor optimism for a Federal Reserve interest rate cut in September. This optimism was spurred by a recent Consumer Price Index (CPI) report that did not show runaway inflation, increasing the perceived probability of a rate cut to over 90%. Lower interest rates are generally seen as a positive for the economy as they reduce borrowing costs for consumers, which can stimulate spending on non-essential goods. Consequently, investors bid up shares in the apparel, home furnishings, and automotive retail industries in anticipation of stronger consumer demand.

American Eagle is down 26.4% since the beginning of the year, and at $12.60 per share, it is trading 44.5% below its 52-week high of $22.70 from August 2024. Investors who bought $1,000 worth of American Eagle’s shares 5 years ago would now be looking at an investment worth $1,079.

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