The major U.S. stock indexes climbed 2% to 3+%, regaining ground they had lost the previous week and then some, with the S&P 500 and the NASDAQ reaching their highest levels in 15 months. The NASDAQ’s gain of more than 3% was its best weekly result in four months. U.S. Treasury prices jumped as longer-term yields retreated on the positive inflation data, with the yield on the benchmark 10-year note falling below 4%. Earnings season started Friday with reports from some of the big banks, but investor expectations for this season are decidedly downbeat, with the analyst consensus forecasting a 7% year-over-year decline in S&P 500 earnings.
Inflation, as measured by the Consumer-price index (CPI), eased to 3% in June, its slowest pace in more than two years, but remained above the Federal Reserve’s 2% target. Core CPI, which strips out the volatile food and energy components, also decreased but only dropped from 5.3% to a still high 4.8% year-over-year. Rising car prices, strong demand for labor-intensive services and an earlier surge in housing-rental prices have contributed to core inflation. The sharp deceleration in June inflation was helped by the so-called base effects. As we reached the anniversary of the June 2022 reading, which marked the cycle high in inflation at 9.1% when energy and food prices spiked after the invasion of Ukraine, the comparison to this period made the cooling of inflation more dramatic. As the year-ago comparisons become tougher, the improvement in the headline inflation could stall.
Fed officials have signaled that they are likely to raise interest rates to a 22-year high at their July 25-26 meeting, following recent signs of stronger-than-anticipated economic activity. Wednesday’s inflation report isn’t expected to change that outcome.
The Producer Price Index increased 0.1% in June from the previous month, the Labor Department reported Thursday. The index, which measures price changes on products and services before they reach consumers, showed prices increased 0.1% in June from a year before. Prices for final demand less foods, energy and trade services increased 2.6% from a year before.
Earnings activity continues to pick up this week with 60 S&P 500 companies scheduled to report. The focus is still on the financials, with the rest of the money center and investment bank names, a good portion of the regionals, as well as the credit card companies. More results will be coming out of the airline sector, where the still strong travel demand backdrop has been the theme. TSLA will be the first of the mega cap names to report and likely to attract even more attention than usual given the solid strength in the space.
