Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
The stock market rallied last week following reports suggesting that inflation continues to slow. Both the S&P 500 and Dow Jones Industrial Average rose 2 percent last week, while the tech-heavy Nasdaq was up 3 percent. Market Bulls argue that last week’s inflation data supports the notion of a pending soft-landing for the U.S. economy, fueling equity gains.
The Consumer Price Index, or CPI, showed that annual inflation slowed from 4 percent to 3 percent year-over-year in June, the lowest pace since March 2021. Investors note that this is both heading in the right direction, but still above the Fed’s 2 percent target. The CPI peaked at 9.1 percent a year ago, the highest level in more than 40 years. Since then, gas prices have come down 30 percent and the prices paid for used cars are beginning to normalize as well. However, some prices aren’t coming down as fast. The rate on a 30-year mortgage is once again approaching 7 percent. Traditionally, higher mortgage rates have caused home prices to decline, but that is not happening due to depleted housing inventories.
Following suit, the Producer Price Index, or PPI, another popular gauge of inflation, also came in below expectations last week. That data showed annual wholesale inflation cooled to the lowest level in three years in June.
The slowing pace of price increases is leaving consumers feeling a lot more optimistic about the economy. Consumer sentiment data from the University of Michigan saw the biggest monthly jump in July since 2006. The index is currently at its highest level in almost two years.
The Federal Reserve will make its next decision on interest rates on July 26. Expectations are for another quarter-point hike at that meeting, while expectations for rate cuts are now being pushed out further into 2024.
The economic calendar is a little on the lighter side this week. On Monday, we get the Empire Manufacturing report. On Tuesday, we get our most anticipated number of the week, which is retail sales. Then we finish up the week with a handful of housing data, including Housing Starts and Building Permits on Wednesday and Existing Home Sales on Thursday. Investors are also keeping a close eye on the start of earnings season, with more U.S. banks reporting this week.
As always, we will be watching and reporting back to you next week. Thank you.
