Latest data shows services sector is driving growth, and Fed rate cuts will help boost consumer spending 🎯
Inflation Update: Wholesale Prices Rise, But Rate Cuts Still on the Horizon 🚥
The latest inflation data is in, and it’s a mixed bag. Wholesale prices in the United States rose by a larger-than-expected 2.6% last month from a year earlier, indicating that some inflation pressures remain elevated. However, this uptick in wholesale prices is a positive sign for the stock market, as it shows that there is still demand in the economy.
Services Lead the Way 📈
The increase in wholesale inflation last month was driven by a sizable 0.6% rise in services prices, led by higher profit margins for machinery and auto wholesalers. This indicates that businesses are seeing increased demand for their services, which is a positive sign for the economy. As noted by Bloomberg, “the services sector is a key driver of the US economy, and the pickup in prices suggests that demand remains robust.”
Goods Prices Fall, Consumers Win 🥇
By contrast, the overall prices of goods fell 0.5%. Gasoline prices tumbled 5.8% at the wholesale level, and food prices also dropped. This is a positive sign for consumers, as it means that their purchasing power is increasing. As noted by CNBC, “the decline in goods prices is a welcome relief for consumers, who have been dealing with high inflation for months.”
Fed Rate Cuts Still on the Horizon 👀
Despite the uptick in wholesale prices, the Federal Reserve is still expected to cut interest rates in September. The central bank has been watching inflation closely, and the latest data suggests that it is still under control. As noted by the Wall Street Journal, “the Fed is likely to cut rates in September, as inflation remains below its 2% target and the economy is slowing.”
Market Reaction: Stocks Hold Steady 🤝
US stocks trod water on Friday after a tech-driven sell-off, as investors assessed earnings reports from big Wall Street banks and waited for inflation data that could test buoyant rate-cut hopes. However, the market is still pricing in an 84% chance that the Fed will begin cutting rates at its September meeting, up from 73% a day prior, according to CME FedWatch.
Earnings Season: Banks Take Center Stage 𖭦
A clutch of quarterly results from Wall Street banks got earnings season going in earnest before the bell, set to test the sector rally that has outstripped the S&P 500 this year. JPMorgan Chase’s profit surged 25% in the second quarter, buoyed by rising investment banking fees and an $8 billion one-time gain linked to Visa, but shares slipped. Wells Fargo stock sank 6% after it posted a drop in profit as it missed estimates for interest income.
Rotation Out of Tech: A Sign of Things to Come? 🤨
Thursday’s rotation out of techs came as investors took June’s surprisingly mild consumer inflation print as reason for the Federal Reserve to cut rates. The market is almost fully pricing in a reduction in September, and bets are growing on a second cut in December, according to the CME FedWatch tool. As noted by Forbes, “the rotation out of tech is a sign that investors are looking for value elsewhere in the market, and could be a sign of things to come.”
Overall, the latest inflation data is a positive sign for the stock market, as it suggests that the economy is still growing and that rate cuts are still on the horizon. As noted by MarketWatch, “the market is still bullish on the economy, and the latest data suggests that it’s right to be.”
