The futures markets started trading higher today, and are up sharply following the 8:30 a.m. EDT release of the consumer price index (CPI). This report showed that headline inflation was up 0.2% in June (up 3.1% year over year), while core inflation, which excludes volatile food and energy prices, likewise showed prices grew 0.2% in June (up 4.8% year over year). These figures mark the lowest levels since August 2021. The equity indices rose rapidly after the data release as traders priced in less inflationary pressure and a potential easing of monetary tightening. Overall, these factors suggest a strong start to the trading day. Later today, several regional Presidents of the Federal Reserve will give remarks on the economy, which could somewhat influence market sentiment and provide further insight into the Fed's interest-rate policy.
The stock market indexes started weakly yesterday, selling off in the first hour of trading. However, the markets became oversold, rebounded, and the indexes marched higher through the day, ending not far from their apexes. Overall, the S&P 500 rose 30 points (up 0.67%), the NASDAQ climbed 75 points (up 0.55%), and the Dow Jones Industrial Average increased 317 points (up 0.93%). Market breadth was quite positive, as advancers outpaced decliners by a 3.3-to-1.0 ratio. Stocks traded higher yesterday in all eleven economic sectors, with energy issues moving up the most, perhaps indicating less concern about a significant recession on the horizon. On the other hand, healthcare equities were among the worst performers on the day, finishing barely above breakeven levels.
In commodity news, oil prices rose yesterday as traders priced in lower global supply following production and export cuts from Saudi Arabia and Russia, respectively. Elsewhere, U.S. Treasury bond yields were mixed, with short-term rates rising and long-term yields falling. The yield curve remains sharply inverted, with short-term rates trading much higher than those with longer maturities, which usually portends a coming recession, although it may not tell us much about potential severity. The Chicago Board Options Volatility Index, or VIX, more commonly known as the fear index, fell yesterday as traders demanded less options protection.
Several key economic reports will be released in the days ahead. These include core- and non-core producer price indices and initial jobless claims on Thursday. On Friday, the import price index and July's preliminary consumer sentiment index are on the docket. Elsewhere, several dozen companies are slated to report quarterly earnings results in the days ahead, including Dow-30 components, JPMorgan Chase (JPM) and United Health Group (UNH) on Friday. Overall, we think inflationary data will give further insight into the Fed's future interest rate policy, while earnings data should show how companies are faring in this economic environment. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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