Market Pulse

In focus

Stock markets got a bid again last week, marking the fourth consecutive weekly gain for the S&P 500 and NASDAQ Composite, a tech-heavy index. After the rally, the S&P 500 is down less than 10% year to date, a sharp retracement from the mid-June lows, which saw the index down more than 20%.

Investors are finding reasons to be optimistic as the second quarter corporate earnings season wraps up with better-than-anticipated results and the Consumer Price Index (CPI) report from last week suggested peak inflation may be in the rear-view.

Indeed, CPI for July printed flat month-over-month, which was lower than consensus estimates, showing no increase in prices from June. Gas prices are down more than 20% from the highs and many commodities prices as well as the housing market are starting to show cooling conditions. Producer prices also showed signs that the peak in inflation could be behind us. These are welcome signs to investors and the Federal Reserve (Fed) as they continue to monitor conditions for future rate policy decisions.

The optimism for a soft landing has worked its way back into conversations after last week. The other side of the coin is the tremendous amount of central bank tightening that is still ongoing is likely to weigh on future economic activity.

This intensifies the debate among bulls and bears as the 2/10-year yield curve is still deeply inverted and the economy just experienced two consecutive quarters of decline in real GDP this year.

A look back

• All major global stock indices moved higher last week. The U.S. led (+3.3%), while international developed (+2.2%) and emerging markets (+1.7%) also fared well.
• The 10-year U.S. Treasury yield rose slightly to 2.84% and 2-year yields increased by five basis points to 3.24%. The 2/10-year Treasury yield curve remains deeply inverted by over 40 basis points.
• July’s CPI report showed a 0% rise month-over-month and an 8.5% increase year-over-year, both were lower than consensus estimates. This has led investors to speculate that peak inflation has already occurred.

A look ahead

• Retail sales will be released on Wednesday. The strength of the U.S. consumer has been a pillar of the anti-recession argument. All will be watching to see if spending continued despite higher prices.
• The minutes from the most recent Fed rate setting meeting will also be released Wednesday. The committee mentioned a more data-dependent path forward at the time of the last rate hike.
• Economic releases: Retail Sales, Leading Index, Housing Starts, Building Permits, Existing Home Sales, Empire Manufacturing, Industrial Production.