Caution replaces celebration at the open as PCE lands in line and tariff risks linger

Stocks started Friday on the back foot, with the major averages slipping minutes after the bell as investors digested an inflation update that neither scared the market nor gave it license to sprint. The PCE report for July delivered precisely the sort of “almost—but not quite—there” signal that keeps the Federal Reserve on a path toward easing while leaving plenty of room to argue about the tempo. In other words, the outcome favored restraint: take profits where they’re fat, rotate selectively, and wait for the next corroborating data point.

What tilted the mood was composition as much as level. Headline PCE stuck near recent trends and the core gauge edged higher, reinforcing the idea that the last mile back to target runs through services and wages rather than goods. That nuance matters for risk assets priced on the assumption that the Fed can cut quickly and painlessly. Current odds still point to a quarter-point reduction in September, but the bar for a rapid follow-up remains high unless job-market softening accelerates or services disinflation quickens from here.

The equity tape reflected those cross-currents. Tech lagged early, not because the secular AI story has vanished, but because the earnings microscope has zeroed in on margins, inventories, and the seasonality of big infrastructure orders. After months of straight-line narratives, investors are relearning that even the most powerful growth themes ebb and flow across quarters. By contrast, steadier, cash-generative groups—areas that look less tethered to flawless execution—found relative sponsorship into the inflation print.

Macro undertones were equally balanced. Treasury traders marked the front end with a gentle bias toward easier policy while remaining wary of tariff pass-through that could complicate the fall inflation path. The dollar’s early firmness and a mixed commodity complex told the same story: the market’s base case is intact, but confidence is not so high that it can shrug off known risks. Add month-end mechanics to the mix and you get a session structure that rewards patience over bravado.

From here, two near-term checks may shape the afternoon: a regional manufacturing pulse and the final look at August consumer sentiment. Neither is a silver bullet, but both will help investors judge whether the softening evident in some labor indicators is bleeding into demand—or whether resilient household spending can carry the expansion while inflation glides lower. Until then, the bias is to fade strength rather than chase it.

After a summer that vaulted benchmarks to fresh highs, Friday’s post-open tone felt like a reality check. A friendly-but-imperfect inflation update keeps the door open for the Fed to start cutting, yet the path forward depends on details—services prices, tariffs, and the durability of demand. That makes discipline, not euphoria, the order of the day.