Last Week’s Markets in Review: Has Inflation Peaked?
Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the week at a level of 4,280, representing an increase of 3.31%, while the Russell Midcap Index moved 3.77% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 4.97% over the week. As developed, international equity performance and emerging markets were higher returning 2.17% and 1.66%, respectively. Finally, the 10-year U.S. Treasury yield moved higher, closing the week at 2.83%.
Economic data releases were not plentiful during the past week. In fact, there were only two meaningful releases to be considered for the week. Both give us a look at the status of inflation in the month of July. While the economic news flow was light, the importance of both the Consumer Price Index and the Producer Price Index on the markets was great.
Our first look at inflation in the month of July came on Wednesday with the release of the Consumer Price Index. The Consumer Price index rose 8.5% from the prior July. This annual increase was 0.2% below the 8.7% increase that economists surveyed by Dow Jones had expected. The 8.5% increase is a slower pace than the previous month. Lower energy and gasoline prices during the month were primarily responsible for the decline in the pace of increases. Looking deeper into the data, core CPI (which excludes food and energy) rose 5.9% annually and 0.3% monthly, compared with respective estimates of 6.1% and 0.5%. The results may indicate that inflation pressures are easing ever so slightly from their recent record highs. The immediate market sentiment following the CPI report was that this data may allow the Federal Reserve to dial back any future rate hikes. Markets now seem to be pricing in a 50-basis point increase in September at the next FOMC meeting.
The following day the Producers Price Index for July was released. Final-demand wholes prices decreased 0.5% for the month. Annually the increase was 9.8%. The annual increase was the lowest since October 2021 and the monthly decline was the first since April 2020. The results were also lower than the consensus estimates for this data. With the PPI confirming the same message as the CPI, equity markets added to the strong gains for the week and the past month.
Investors should consider all of the information discussed within this market update and many other factors. However, with so much data and so little time to digest, we encourage investors to work with experienced financial professionals to help process all of this information to build and manage the asset allocations within their portfolios consistent with their objectives, timeframe, and tolerance for risk.
Best wishes for the week ahead!
Both the Consumer Price Index and the Producer Price Index is sourced from the Bureau of Labor Statistics. Equity Market and Fixed Income returns are from JP Morgan as of 8/12/22. Rates and Economic Calendar Data from Bloomberg as of 8/12/22. International developed markets are measured by the MSCI EAFE Index, emerging markets are measured by the MSCI EM Index, and U.S. Large Caps are defined by the S&P 500 Index. Sector performance is measured using the GICS methodology.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.