U.S. retail sales fell 0.6% month-over-month in July, marking the largest decline in over a year. Combined with concurrent weakening in nonfarm payrolls, CPI, and PPI data, market expectations for Federal Reserve rate hikes have cooled significantly, with the probability of a September rate hike dropping below 30%. The economy is now exhibiting a combination of “cooling demand, tepid employment, and no renewed acceleration in inflation,” shifting the policy pendulum from “rate hike as soon as possible” to “on hold.” For the AI computing theme and the semiconductor sector, this macro environment lowers discount rates and reduces financing cost risks. Coupled with strong industry fundamentals, this creates a “double positive” effect of upward earnings revisions and easing interest rate pressures. Global AI assets are continuing their counteroffensive rally, with market capital actively chasing short-cover risk premiums.
Data released by the U.S. Census Bureau show that among the 13 categories covered, 5 posted declines, with non-store retailers’ sales falling 2.2% leading the declines, and motor vehicle and parts dealers’ sales down 1.8%. Meanwhile, restaurant and bar revenues rose 0.5%, making it the only services category in the retail sales report to maintain growth. The so-called “control group sales” — a metric that will be incorporated into the government’s calculation of goods consumption expenditures in GDP — fell 0.4%, also marking the largest decline since early 2025.
The CPI, PPI, nonfarm payrolls, and retail sales data can be described as “four arrows in one quiver,” collectively dealing a blow to the monetary policy hawkish stance. Interest rate futures market pricing shows that the probability of a Fed rate hike in September has fallen below 30%, a sharp drop from expectations of over 50% before the CPI data release. The July nonfarm payrolls unexpectedly declined by 23,000, CPI rose only 0.1% month-over-month, core CPI rose 0.2%, and PPI was unchanged month-over-month. This combination of “cooling demand, tepid employment, and no renewed acceleration in inflation” directly undermines the urgency of “must hike now” recently voiced by dissenting hawkish voters.
Following the retail data release, pricing based on federal funds futures showed the probability of maintaining the 3.50%–3.75% interest rate unchanged in September rose to 70.4%, while the probability of a 25-basis-point hike was only 29.6%. However, by December, the probability of rates remaining unchanged is about 38.1%, while the probability of one rate hike is about 44.0%, indicating that the market remains deeply divided on whether a rate hike will occur within the year.
The Philadelphia Semiconductor Index plunged nearly 29% from its all-time high on June 22 to its low on July 29, but as of August 13 it had rebounded about 20% from that low, suggesting that the July selloff was more of an “AI crowded-position liquidation storm” rather than a reversal of the AI computing industry fundamentals. South Korea’s KOSPI benchmark index also staged a strong rebound from its July 30 low, rallying approximately 24.7% cumulatively, with Samsung Electronics and SK Hynix posting weekly gains of 19% and 16%, respectively, and foreign capital returning in force on a single-week basis. Recent industry chain data show that AI computing fundamentals continue to strengthen, and the “double positive” effect of upward earnings revisions and easing interest rate pressures has begun to take hold, forcing previously underweight capital to scramble back in. Citadel Securities statistics show that call option trading volume on the S&P 500 hit an all-time record on August 4, as investors actively pay a premium for the risk of being left behind.
