Stocks Rally on Inflation Reports; Bonds Flat
Good morning,
The Dow (+1.7%), NASDAQ (+0.8%), and S&P 500 (+1.0%) each ended the week modestly higher. Meanwhile taxable bonds and tax-free municipal bonds were down slightly (<0.1%), as the 10-year Treasury yield rose 0.04% to finish the week at 4.32%.
Economic data reported last week caused the markets to move swiftly upward and then cooled later in the week. The Consumer Price Index (CPI) – the most referenced inflation reading – came in at 2.7% year over year (Y/Y), below economists’ expectations. That caused stocks to move sharply upward, as it gave investors hope that the Fed would cut rates by 0.5% in September. This rally was particularly noticed in small cap stocks, as they would benefit the most from interest rate cuts. That party ended the next day, as the Producer Price Index (PPI) rose 0.9% month over month (M/M), well above economist expectations of 0.3%. Lastly, July retail sales were reported and showed a sharp increase over the prior month, and the June values were revised upward. All this data is basically demonstrating that the tariffs are having less impact on inflation than expected, corporations seem to be absorbing much of the tariffs, and that consumers continue to spend.
From the 30,000-foot level, economic data is showing that inflation is easing, but not as quickly as hoped by the Fed. Further, it also appears that the tariffs are having less of an impact on inflation than originally feared, but the jury is also still out on that. The labor market is slowing a bit, but consumers continue to spend, despite there being signs of an economic slowdown. It appears now that the Fed will likely lower rates at its next meeting in September, so the remaining debate is whether they choose to lower it by 0.25% or 0.5%. Corporate earnings season is nearly over, except for the most recent darling of Wall Street, Nvidia Corporation, who is expected to report their earnings on August 27.
Have a great day and terrific week!
Source: Yahoo Finance
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
