Waiting With Bated Breath. Markets took five on Tuesday, with all three major indexes falling ahead of tomorrow’s inflation report.

The Dow Jones Industrial Average fell 184 points, or 0.3%. The S&P 500 was down 0.3%. The Nasdaq Composite fell 0.6%.

The yield on the 2-year Treasury note dipped to 4.22%. The 10-year yield was down to 4.68%.

“The dog days of summer are here, characterized by thin volume, narrow index moves, and a lighter earnings flow, while market participants cast a wary eye on Treasury yields that keep tightening the vise,” writes Joe Mazzola, head trading and derivatives strategist at Charles Schwab.

Investors are waiting for tomorrow’s consumer price index report. Economists are expecting to see that prices rose by 0.1% in July from June, according to FactSet consensus estimates. If the numbers come in as expected, without signs of a big inflation bump, it could help alleviate fears that the Federal Reserve has to increase interest rates sooner rather than later.

Of course, there’s always a risk that inflation surprises to the upside—particularly because oil prices spiked again toward the end of July as hostilities resumed between the U.S. and Iran. Brent crude oscillated around the $90 a barrel mark on Tuesday amid ongoing uncertainty over when the Strait of Hormuz would reopen. Traffic through the strait remains weak—over the weekend, confirmed crossings fell from 15 on Friday to 11 on Saturday and just six on Sunday, according to Kpler.

Negotiations got a bit more complicated on Monday. Now that both the U.S. and Iran are demanding reparations from each other to end the conflict, dashing any remaining hopes of a quick resolution.

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The Hot Stock: KKR & Co Inc +6.9%
The Biggest Loser: AppLovin Corp -6%

Best Sector: Utilities +1.1%
Worst Sector: Communication Services -2.1%

The number of people leaving the U.S. workforce is hitting historic levels. Just don’t blame AI for the exodus, writes my colleague, Megan Leonhardt.

Since January, the labor-force participation rate declined by 0.7 percentage points, the steepest January-to-July decline since that data has been collected, outside of the Covid-19 shutdown in 2020. In July, the labor-force participation rate came in at 61.4%, down nearly one percentage point over the past year.

Much of that dip is being driven by older workers retiring and more restrictive immigration policies. People 55 and older have been leaving the workforce at a faster rate than expected, in part because record-high home values and stock market gains are padding balance sheets. Ageism is also alive and well, driving older employees out of the workplace. Meanwhile, more deportations and stringent border control has decreased the supply of available workers looking for jobs, especially under the age of 55.

“Looking ahead, businesses will likely use technology and AI, in particular, to augment or even substitute for labor,” Megan writes.

Over time, that will likely offset the shortages in labor suppy by boosting productivity. Meanwhile, though, the labor force will have to work around these challenges of supply and demand.

Read Megan’s full story here.

Amcor, Brinker International, Cerebras Systems, Cisco Systems, Coherent, Nebius Group, Performance Food Group, StubHub Holdings, and Trimble release earnings tomorrow.

The Bureau of Labor Statistics releases the consumer price index for July. Economists forecast 3.4% year-over-year increase, one-tenth of a percentage point less than in June. Core CPI, which strips out volatile food and energy prices, is expected to rise 2.5%, compared to 2.6% previously. That measure was last at or below the Federal Reserve’s 2% inflation target in March of 2021.

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