This morning, the focus of Wall Street is on the U.S. economy, with the latest report on producer (whole) prices drawing much of the attention. At 8:30 A.M. (EDT), the Labor Department reported that the Producer Price Index (PPI) and the core PPI, which excludes the more-volatile food and energy components, increased 0.2% and 0.3%, respectively, on a month-to-month basis in August. The headline figure was relatively in line with expectations, but the core PPI was a bit hotter than expected. On a 12-month basis, the PPI and core PPI rose 1.7% and 2.4%, respectively, with both coming in below forecasts. In all, the data showed some moderation in price growth at the producer level. In a separate Labor Department report, we learned that initial jobless claims for the week ending September 7th totaled 230,000, which was up 3,000 from the prior-week’s revised figure.
Earlier today, the European Central Bank (ECB) announced it has cut its benchmark short-term interest rate by a quarter-point, to 3.50%. This marks the second-consecutive reduction by the ECB. Christine Lagarde, President of the ECB, said sluggish economic growth across the euro zone and cooling inflation on the Continent were the main drivers behind the decision to again lower interest rates. The major European bourses are trading higher on the news, and the U.S. equity futures, which were modestly higher heading into today’s economic releases, are now presaging a relatively flat opening when trading kicks off stateside.
The name of the game on Wall Street thus far in September has been volatility. The market turned in another volatile performance yesterday, with some notable selling early on then giving way to a massive rally in the second half of the session. The whipsaw action, which saw the NASDAQ Composite swing by more than 630 points in intra-day trading, was a reaction to the release of the August Consumer Price Index (CPI) data. That report showed a notable decrease in consumer price growth on a 12-month basis (from 2.9% in July to 2.5% last month). However, the core CPI, which excludes the more-volatile food and energy components, rose 0.3% on a month-to-month basis, a bigger-than-expected increase. The CPI report did not change the narrative that the Federal Reserve will cut the federal funds rate at next week’s Federal Open Market Committee (FOMC) meeting, but did reduce the odds of a half-point reduction, which some on Wall Street were pricing into the market. The latter prompted the early selling.
But after that initial sharp selloff on the CPI data, the market rallied after investors realized that the central bank, though unlikely to cut the federal funds rate by more than a quarter-point next week, will probably be quite dovish over the remaining months of 2024 and next year. Bullish commentary from NVIDIA’s (NVDA) CEO Jensen Huang about artificial intelligence (AI) also gave a big boost to the technology sector and the overall market. The Dow Jones Industrial Average, the tech-heavy NASDAQ Composite, and the broader S&P 500 Index finished 0.3%, 2.2%, and 1.1% higher, respectively.
Meantime, building worries about the health of the U.S. economy continue to create some anxiety on Wall Street. Those concerns were fueled by the weak August employment report (released last Friday), which showed smaller-than-expected jobs creation, and a continued contraction in manufacturing activity. The current global oversupply of oil—and resultant drop in crude prices—likely reflects sharply lower demand from China and now some economic weakness stateside. Historically, the state of the oil and gas markets can provide some clues about the overall health of the global economy.
In recent weeks, we have seen some “flight to safety” on Wall Street, as concerns about slowing growth stateside have unnerved investors. It should be noted that the price of gold, which is seen as a safe-haven holding, is up more than 22% year to date, likely reflecting concerns about inflation earlier in the year and now worries about the economy. On the same note, bond prices, which initially fell on yesterday’s CPI data, reversed course during the session, likely on continued worries about growth. (A successful government auction of 10-year Treasury Notes yesterday afternoon, which put some downward pressure on yields, also played a part in the bond market rally.) Jamie Dimon, leader of money center bank JPMorgan Chase (JPM) also said that stagflation, which happens when slowing growth occurs at the same time prices remain elevated and the job market is weakening, can’t be ruled out. That scenario would probably not be a good backdrop for equities going forward. – William G. Ferguson
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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