Economic Blog
Consumer inflation has surged back after a strong quarter of U.S. consumer demand.
As shown in the LPL Chart of the Day, Consumer Inflation Picks Up in July, the core Consumer Price Index (CPI), which excludes food and energy prices, rose 2.2% year over year last month, its fastest pace of growth in six months. Core CPI has climbed 0.3% month over month in June and July, its biggest two-month gain since 2005.
The June jobs report was solid.
Nonfarm payrolls rose 224,000, according to data released July 5. As shown in the LPL Chart of the Day, Strong June Payrolls Gain Surprises Investors, the rise in jobs last month handily beat estimates for a 160,000 gain.
Daily Insights
Stocks rally. The S&P 500 Index gained 4.4% last week, its best week since November, on increasing hopes for Federal Reserve (Fed) rate cuts. Friday’s weaker-than-expected May jobs report sealed the deal for financial markets, as fed fund futures are now pricing in a 99% chance of a rate cut by the end of the year. A cut does look increasingly likely, but we believe that fed fund futures markets remain too aggressive given on-going fiscal stimulus, an economy that has been growing near 3%, and a near 50-year low in the unemployment rate. However, policy uncertainty remains the biggest risk to the economic outlook, and the bond market has increasingly signaled that monetary policy may be too tight for a drawn out trade dispute. Continue reading
Financial markets are desperately looking for direction these days.
One issue rattling markets is the constant debate over the state of inflation. Inflationary pressures have accelerated this year, but over the past month, investors have braced for the threat of deflation. As shown in the LPL Chart of the Day, breakeven rates, or the difference between the yields of nominal Treasuries and those of Treasury Inflation-Protected Securities (TIPS), plunged last month. The 2-year breakeven rate is now sitting near a 16-month low.
Well, here it comes—September. It’s widely considered the worst month of the year for equities for good reason, since it has historically performed the worst. Per Ryan Detrick, senior market strategist, “September is the banana peel month, as some of the largest slips tend to take place during this month. Although the economy is still quite strong, and stocks are marking hew highs, this doesn’t mean some usual September volatility is out of the question—in fact, we’d be surprised if volatility didn’t pick up given midterm years tend to see big moves in the months leading up to the November election.”
US: S&P 500 Index +0.9%, Dow +0.1%, Nasdaq +2.1%
Europe: STOXX Europe 600 -0.3%, German DAX -0.3% France CAC 40 -0.5%, U.K. FTSE 100 -0.8%
Asia: Japan Nikkei 1.2%, China Shanghai Composite -0.2%, Korea KOSPI 1.3%
Rates/Commodities: 10-Year Treasury yield +4 basis points to 2.86%, WTI crude oil 1.7%, COMEX gold -0.6%
The incredible summer rally continues, as the S&P 500 Index is only two days away from possibly notching a fifth consecutive monthly gain. Not to be outdone, the usually tricky month of August is looking to potentially post one of its best returns going back to 2000.
But wait, there’s more: Since 1950, no month has had fewer all-time highs than the month of August, but with two days to go, it has reached new all-time highs for four consecutive days. That hasn’t happened in August since 1987.
Daily Insights
It has been an outstanding earnings season by many measures. Second quarter numbers were strong, even without the boost from the new tax law. With just a small handful of companies left to report, S&P 500 Index earnings are up about 25% year over year, or 18-19% without the boost from corporate tax cuts. A record 80% of S&P 500 companies exceeded quarterly earnings targets, according to data from Thomson Reuters, while index earnings have now beaten expectations 37 straight quarters.
“Strong revenue growth and strong operating cash flows, in addition to tax cuts, are driving overall profit growth,” noted LPL Chief Investment Strategist John Lynch.
Daily Insights