The major stock market averages posted strong gains last week – the Dow Jones Industrial Average rose 2.9% to 33,761 – the NASDAQ Composite added 3% to 13,047 – while the Standard & Poor’s 500 Index climbed 3.3% to 4,280 – its fourth consecutive positive week. The primary force behind the winning week was inflation data that came in cooler-than-expected.
The headline Consumer Price Index number for July came in at 8.5%, versus market expectations for a reading of 8.7%, and down from 9.1% in June. The Producer Price Index registered a decline of .5%, versus consensus estimates for an increase of .3%. The stock market perceived this data as a signal that inflation may have already peaked, and that the Federal Reserve is succeeding in its battle against inflation. Expectations are now the Fed will raise rates ½ point at the September meeting, whereas odds were previously indicating a ¾ point hike, according to the CME FedWatch Tool.
In short, with tamer inflation data and the possibility of a less aggressive Federal Reserve – the Bulls were off to the races, pushing stock prices higher. Our cautionary note here is that even if the market is correct and inflation has peaked, it does not mean the overall inflation problem is solved. While things are headed in the right direction, we think it is too soon to declare victory. Investors should expect volatility around inflation and Federal Reserve policy to continue.
Looking to the week ahead, we will get a close-up look at the retail sector, as several big retailers are scheduled to report results. Home Depot, Target, TJX Companies, Walmart, Lowe’s, BJ’s Wholesale Club and Kohl’s highlight what we refer to as “retail week” in earnings season. Additionally, July Retail Sales is released on Wednesday, with expectations for an increase of .2%. Away from retail, we’ll get earnings reports from companies including Applied Materials, Deere, and Cisco Systems, as second quarter earnings season wraps up.
As always, don’t hesitate to reach out to us with any questions, or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC