The futures markets were not too far off of breakeven levels this morning ahead of the release of the Bureau of Labor Statistic’s Consumer Price Index. This report showed that headline inflation was higher by 0.2% in July, versus the prior month (up 2.9% year over year). Core inflation, which excludes volatile food and energy prices, was also higher by 0.2% in July (up 3.2% year over year). The stock market fell a little on the news and slipped into the red, and U.S. Treasury bond yields moved slightly higher on the announcement. Overall, this outcome shows that progress has been made on inflation, but not as much as some traders were expecting. Overall, we think the market will start the day on weak footing after yesterday’s strong advance.
The market started positively yesterday, and the indices rose throughout much of the day following a Producer Price Index report that showed that July headline producer inflation was up 0.1% (up 2.2% year over year). Core producer prices, which exclude volatile food and energy, were up 0.3% in July (up 3.3% year over year). The market interpreted this news positively, believing that interest-rate cuts would be right around the corner and bid up stock prices throughout the day. Overall, the S&P 500 rose 90 points (up 1.68%), the NASDAQ increased 407 points (up 2.43%), and the Dow Jones Industrial Average was higher by 409 points (up 1.04%). Moreover, market breadth was very positive, with advancers outpacing decliners by a 4.1-to-1.0 ratio. Technology issues were amongst the biggest winners of the day, while energy issues were amongst the weakest.
In commodity news, oil prices fell rapidly yesterday as traders priced in less geopolitical risk and reduced concerns about future demand. Elsewhere, U.S. Treasury bond yields largely fell across the board following the release of the producer price index data. The Chicago Board Options Exchange Volatility Index, or VIX, commonly known as the fear index, fell rapidly as traders moved away from options protection.
Several economic reports will be released in the days ahead, providing crucial insights into the market's future. These include initial jobless claims, the Empire State Manufacturing Survey, and U.S. retail sales on Thursday. Consumer sentiment, housing starts, and building permits are slated for release on Friday. Additionally, several Federal Reserve Regional Presidents will give remarks on the broader economy and provide some insight into the Fed’s thinking in the days ahead. Elsewhere, several dozen companies will report earnings results in the days ahead, though we are well past the apex of earnings season. We think most eyes will be on the upcoming employment report. - John E. Seibert III
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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