US stock futures fell on Friday morning after a stronger-than-expected US Producer Price Index (PPI) reading. Dow Jones Industrial Average futures dropped 1%, while S&P 500 and NASDAQ futures also moved lower.
Core PPI for January, which excludes food and energy, rose 3.6% year on year. This was up from 3.3% previously and above the 3% consensus forecast.
Headline Ppi Surprise
Headline PPI increased 0.5% month on month. That compared with a 0.3% consensus estimate.
Dell Technologies shares rose 11% in pre-market trading after issuing guidance. Dell forecast $13 billion in AI server revenue for the first quarter.
Bank of America increased its price target for Dell from $135 to $155. Dell also guided for fiscal 2027 EPS growth of 25%, compared with prior guidance of 15%.
This recent inflation surprise feels a lot like the challenges we navigated back in 2025. With the latest January 2026 Producer Price Index showing a 0.4% monthly increase, it is clear pricing pressure has not disappeared. Traders should consider buying volatility, as the CBOE Volatility Index (VIX) has already jumped to over 17, a level reminiscent of the uncertainty we saw last fall.
Rates Outlook Shifts
Given this data, we believe the odds of a March rate cut from the Federal Reserve are now significantly lower. The fed funds futures market has already adjusted, now pricing in less than a 25% chance of a cut next month, down sharply from over 60% just weeks ago. This delay in expected easing will likely put downward pressure on interest rate-sensitive derivatives.
We are seeing a clear split in the market where AI-related companies are defying the broader macro concerns. Dell’s incredible guidance reminds us of the explosive growth throughout 2025, when the AI infrastructure market grew by an estimated 35%. This suggests a pairs trading strategy could be effective, such as buying calls on strong technology names while buying puts on a broader index fund like the SPY.
We should remember the market action from 2023, which offers a valuable lesson for today. Even as the Fed executed its aggressive rate-hiking cycle, a handful of mega-cap tech stocks fueled by the AI narrative led a massive market rally. This history suggests that even in a restrictive rate environment, thematic strength can overwhelm macroeconomic headwinds.
