Week in Review: July 12, 2024

July 15, 2024

Recap & Commentary

Markets ended the week higher with the S&P 500 and NASDAQ setting new records along the way. Better-than-expected consumer inflation data along with comments from Fed Chair Jay Powell helped drive gains in both equity and fixed income markets which saw yields fall across the curve.  Small caps which have notably lagged large caps in 2024 enjoyed their best week of the year.

June inflation data marked the second month in which inflation appeared to once again be heading in the right direction with respect to the Fed’s longer-term target of 2%. Even “supercore” inflation, a more nuanced reading of inflation that is especially sensitive to nominal wage increases, fell 0.1% for a second consecutive month, returning to 4.7%, its lowest level since February.

Speaking before Congress, Fed Chair Jay Powell largely reiterated previous comments that “more good data would strengthen our confidence that inflation is moving sustainably toward 2%.” Thursday’s June CPI inflation report suggested that might be the case. Markets also interpreted comments from Powell about the job market having “cooled considerably” and that it “is not a source of broad inflationary pressures for the economy” as a sign that perhaps he is becoming more open to the idea of rate cuts.

In response to his testimony and the June CPI data, the yield on the 10-Year Treasury fell 0.09% to 4.19%, its lowest level since March. At the same time, market expectations for a September rate cut increased from 72% to 90%. Broader expectations regarding rate cuts in 2024 also increased, with markets now expecting three rate cuts by December, up from two a week ago.

Economic Commentary

Headline consumer inflation (CPI) contracted 0.1% in June, the first month-on-month decline since May 2020. Much of the decline was aided by energy prices which contracted 2.0% for the second consecutive month, aided by a 3.8% drop in gasoline prices. Food prices, however, increased 0.2%, the largest monthly gain since January. Compared to a year ago, headline CPI slowed to 3.0%, below the forecasted 3.1% growth and down from May’s 3.3% pace. Excluding food and energy, core CPI rose just 0.1% for the month and 3.3% from a year ago.  Shelter prices accounted for nearly 70% of the total 12-month increase in core CPI, rising 5.2%, but down from May’s 5.4% pace. Notably used car and truck prices fell 10.1% from a year ago.

Somewhat offsetting the CPI data was producer inflation (PPI) showing prices rose faster than expected in June. On a headline basis, producer prices rose 0.2% after no growth in May. Compared to a year ago, PPI inflation reaccelerated from 2.4% in May to 2.6% in June. Excluding food and energy, core PPI prices rose 3.0%, the fastest pace since April 2023. The concern is that higher producer prices could ultimately be passed along to consumers.

Consumer sentiment declined in the first half of July, to an eight-month low, as higher prices continued to sour consumers’ views on both current and future conditions. On a positive note, both 1-year and 5-year inflation expectations declined from 3.0% to 2.9%.

Of Note

Apple became the first company to surpass $3.5T in market cap. Apple, Microsoft, and Nvidia each account for more than 7% of the S&P 500, while the Top 10 companies now account for ~35% of the index.

Market Indices   (As of 07/12/2024)

• Retail Sales
• Housing Starts
• Industrial Production
• Weekly Jobless Claims