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Financial Market Update – Week of 07/17

July 17, 2023

Overall, the S&P 500 gained 2.42%, the Nasdaq 100 surged higher by 3.52%and the Dow Jones Industrial Average increased by 2.29% for the week.

Consumer Inflation – Cools for Twelfth Straight Month

All eyes were on June Consumer Price Index (CPI) data last week, and the consumer pricing data did not disappoint! The release showed softer gains in food, used vehicles, and airline prices. Have you noticed different pricing on certain items in your world?

  • CPI increased only 0.2% month-over-month versus the 0.3% expected.
  • CPI increased 3% from one year ago versus the 3.1% expected, the lowest level since March 2021.
  • Core CPI (which excludes food and energy) rose 4.8% from one year ago.
  • It’s important to note food prices are still higher by 6.7% over a year ago.

Given that the 4% yearly CPI metric in May decreased to 3% in June, stock investors had lots of reasons to cheer.

Producer Pricing Rises Less Than Expected

In a double whammy of cooling inflation data last week, softer wholesale pricing also offered more signs of encouragement in the inflation fight.

Expectations were for a 0.2% rise in monthly producer pricing, according to economists surveyed by Dow Jones, while final data showed an even smaller rise of 0.1%

With wholesale costs moving lower, we can hope for lower prices to trickle down to the consumer level further at some point soon (if it wasn’t for those darn corporate profits!).

Surely though, businesses have realized the longer-term effects that inflation has created for consumers and will react appropriately. It indeed feels like food pricing has been slightly lower lately when grocery shopping, at least on some items.

Could inflation be in the rearview mirror soon?

Stock Rally Broadens

It’s the stuff that stock market historians and active participants love to see. The recent stock market rally broadened last week, with strength seen in many sectors and indexes, including small-cap stocks and the Dow Jones Industrial Average.

broadening stock market rally with more stocks participating in upward pricing is a healthy development versus price advances in only a select group of stocks (such as tech).

July Rate Hike on the Table

The CME FedWatch tool showed a 96.1% chance of a Fed rate hike at the July 25-26th meeting as of Monday morning. This comes after the Fed paused its rate hike campaign at its June meeting. The widely expected rate hike begs the question: “If inflation is cooling, why are we still hiking rates?”

Thinking back, when inflation first reared its ugly head, the Fed had deemed it “transitory.” Remember that? Well, perhaps the Fed doesn’t want to make the same mistake twice–getting too complacent about inflation and risking it coming back with a vengeance as it did in the 1980s.

For the remainder of the year, expectations range from one more hike after the July meeting to the Fed completing its rate hike crusade at the July meeting. For its part, the Fed broadcast at the June meeting that there would be two more rate hikes, one of which would be at the July meeting.

Last Week = “Healthy” Market

If you listen to the talking heads on TV (the knowledgeable ones, anyway!) or chat with market veterans, they will emphasize the broadening of the stock market rally as being a healthy sign, and it is. There seems to have been a shortage of folks calling for the recession in recent weeks, with markets liking the cooling inflation and what appears to be the Fed nearing the end of its rate hike cycle.

As long-term investors, recent stock market strength does not drastically impact our thinking; our investing attitude remains consistent throughout all phases of market cycles. Long-term investing has enjoyable periods, and the last couple of months have been one of those periods. 


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