Stocks Rise Sharply on Favorable Economic Data; Bonds Also Gain

Good morning,

The Dow (+2.9%), NASDAQ (+5.3%) and S&P 500 (+4.0%) each exhibited a strong week.  Taxable bonds were up 0.5% and tax-free municipal bonds gained 0.2%.  The 10-year Treasury yield fell 0.05% to end the week at 3.89%.

The stock and bonds markets reacted very favorably to strong economic data last week.  Two inflation reports – Producer Price Index (PPI) and Consumer Price Index (CPI) were both below investors’ expectations, suggesting that inflation continues to slow down.  In fact, the CPI rose 2.9% year over year, the first time falling below 3% since the beginning of 2021 when inflation began to sky rocket.  Retail sales for July also gained more than expected, offsetting economists’ fears that consumer spending (about 70% of the US economy) is being stressed, as noted by other reports.

So, what does all this mean?  Many pundits believe that the case for a “soft landing” may be coming to fruition.  A soft landing is when inflation goes down without jeopardizing the labor market and/or causing a recession.  While inflation hasn’t fallen to the Fed’s target of 2%, the trend gives the Fed more justification that it can lower interest rates in September.  That has seemingly become a foregone conclusion now, so the only question is whether the Fed lowers rates by 0.25% or 0.5%.

Have a great day and terrific week!

^{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.}