inflation

Weekly Market Commentary – July 15, 2019

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The S&P 500 continued its steady climb and ended the week at a new record high. Investors remain confident the Federal Reserve will lower rates at its meeting in late July. The S&P 500 climbed 0.8% for the week. The MSCI ACWI gained 0.2%. The Bloomberg BarCap Aggregate Bond Index edged 0.2% lower as yields rose in response to stronger-than-expected inflation.

CPI YOY
Key Points for the Week

  • The S&P 500 reached another new record as investors retained an optimistic outlook for the effectiveness of rate cuts and a resolution to trade disputes.
  • Inflation beat expectations but remains below targeted levels.
  • Comments by Jerome Powell continue to signal a rate cut is likely.

Powell Comment Reassures Despite Inflation

Overall inflation remains low in the U.S., but core inflation exceeded expectations. The Consumer Price Index rose just 0.1% last month and is up only 1.8% over the last year, as seen in the accompanying chart. Weakness in food and energy prices kept inflation at low levels.

Prices for food and energy can be volatile, so economists also focus on core inflation, which excludes food and energy. When excluding those more volatile elements, inflation was much stronger. The U.S. Core Consumer Price Index rose 0.3% last month, the highest rate in a year and a half, and 2.1% year-over-year.

After stronger-than-expected core inflation and a strong jobs report, investors were concerned the Fed would hold off cutting rates. Fed Chair Jerome Powell eased investors’ concerns by stating the overall economic outlook has not improved despite the recently robust economic data.

Market expectations reflect the near unanimous expectation of a rate cut at the Federal Reserve meeting in late July. The only disagreement that remains is whether the Fed will cut 0.25% or 0.5%. The majority expects a smaller cut. Given the recent trend of stronger economic data, a single hike seems the best course of action.

Market expectations remain somewhat rosy. Not only are multiple rate cuts expected this year, but those cuts are anticipated to reenergize economic growth. Most U.S. companies will also report earnings in coming weeks. A little pessimism may slow the market’s steady advance.

Fun Story

Black bear photographed enjoying sunrise at New Hampshire hotel

There are few things better than watching the sunrise over the mountains, and apparently this bear agrees. A video was taken recently by Sam Geesaman, an employee of Omni Mount Washington Resort in New Hampshire, of a black bear enjoying the sunrise, leaning over the hotel balcony and gazing at the White Mountains.

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