Before The Bell
The investment community was eagerly awaiting the latest consumer pricing data at 8:30 AM EDT, and after the release, the equity futures, which were relatively flat, moved higher on the report. The data came in as expected, with consumer prices rising 0.5% in July and jumping 5.4% year over year. The consensus called for respective increases of 0.5% and 5.4%. The biggest contributor to the increase was a 41% jump in energy prices, which came as President Biden called on OPEC to increase oil production to match rising demand. Our sense is that market participants viewed the slowing pace of increases in July prices positively and that some of the rise may indeed be transitory in nature, resulting from continued supply-chain disruptions and pent-up demand in consumer-related industries.
Yesterday, the stock market started positively, aided by improving sentiment for the economy. The traders watched as the U.S. Senate passed an Infrastructure bill, suggesting that more stimulus measures will support the domestic economy. If such legislation is passed by the House and signed by the President, the outcome may bolster near-term sales and earnings at companies across the country. Traders responded to this positive news by buying up stocks, causing the Dow Jones Industrial Average and S&P 500 to reach all-time intraday highs. However, reports of further restrictions due to the coronavirus pandemic caused traders to pare their holdings. Additionally, some economic data underwhelmed traders, as second-quarter productivity was up 2.3% (median forecast was up 3.2%), which could signal slower economic and earnings growth than previously expected. The markets then trended lower through the afternoon. Even so, the Dow and S&P 500 reached all-time highs, with the Dow up 163 points and the S&P 500 rose 4 points. However, the NASDAQ did not participate in the upside and finished the day down 72 points.
Market breadth was slightly positive yesterday, as advancers outpaced decliners by a 1.2-to-1.0 ratio. Energy issues were among the strongest performers on the day, aided by a rebound in the related commodities. Meanwhile, REITs were among the weakest, hurt by changes in long-term interest rates.
In commodity news, oil prices rose yesterday after several weeks of declining prices. They had fallen as data showed the delta variant of the coronavirus continues to spread, reducing traders' demand expectations.
Meantime, U.S. Treasury bond yields were a mixed bag, but long-term rates rose a bit due to higher inflation expectations, likely related to the infrastructure package. The VIX Volatility Index was slightly higher yesterday but did not move much from its prior level.
Looking to the day ahead, U.S. futures are in the green, indicated a positive start to the session. The futures market started yesterday unevenly, slipped into the red by the late evening, but perked up as contracts rose following the CPI data. The companion report on producer (wholesale) prices are due tomorrow, along with the latest initial weekly employment claims data. These reports will likely be a key piece of information that the U.S. Federal Reserve uses when determining interest-rate policy.
Additionally, several hundred companies are slated to report quarterly results before the opening bell and after the market close today. Still, these represent a winding down of the earnings season. All told, we think that most traders will be keeping an eye on any signs of inflation and how the economy is doing.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
