Stocks enjoy a winning week thanks to lower inflation
Last updated 4:25 PM EST
Stock indexes ended Friday’s trading session in the green. The Dow Jones Industrial Average, S&P 500 and Nasdaq 100 gained 1.27%, 1.73% and 2.06%, respectively.
Also, Treasury yields fell today, with the US 10-year Treasury yield falling to 2.84%, down 4.9 basis points from yesterday. Conversely, the two-year Treasury yield rose to 3.255%. This makes the differential between them -41.5 basis points.
Investors enjoyed a winning week as inflation data came in softer than expected. While this is a pleasant surprise, there is still no guarantee that the inflation problem is over. Indeed, inflation remains high, just slightly lower than initially believed at the start of the week.
However, the futures market is more likely to lower the Fed funds rate by the end of the year. In fact, the market’s expectations for a rate in the range of 3.75% to 4% fell to 17.6%, which is lower than yesterday’s expectations of 19.3%. In addition, the market now also assigns a probability of 32.6% to a range of 3.25% to 3.5%. For reference, investors had assigned a possibility of 30.5% yesterday.
Prices at the pump continue to fall
Last updated 3:00PM EST
Stock indexes are in the green towards the final hour of today’s trading session. As of 3:00 PM EST, the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 are up 1%, 1.4% and 1.7%, respectively.
WTI crude is currently around $91 a barrel, trading not far from its session low of $91.19 a barrel.
Gas prices across the country continue their downward momentum. In fact, the national average for regular gas remains below $4 per gallon. Today’s average price is $3.978 per gallon, down from yesterday’s reading of $3.99. That’s significantly lower than the all-time high of $5.016 per gallon on June 14.
The highest prices can be found in Hawaii, where prices are substantially higher than the national average at $5.386 per gallon. On the other hand, Texas is the state with the lowest gas prices, at $3.483 per gallon.
This downward trend is likely to continue as the Federal Reserve looks to raise interest rates to combat inflation. However, higher rates will destroy demand throughout the economy.
Consumer inflation expectations are rising
Last updated at 12pm EST
Shares are in the green midway through Friday’s trading session. As of 12:00 pm EST, the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 are up 0.7%, 0.9% and 1.2%, respectively.
The energy sector is the biggest laggard so far, down 0.6%. Conversely, the technology sector (XLK) is the leader of the session, with a gain of 1.3%.
Additionally, WTI crude remains in the red as prices are currently hovering around the mid-$92 level. Meanwhile, bond yields are lower, with the US 10-year Treasury yield now hovering around 2.85%. This represents a decrease of more than three basis points from the previous close.
On Friday, the University of Michigan released its preliminary results on consumer inflation expectations over the next five years. Consumers expect inflation to be 3%. This figure is down from its June peak of 3.3%. However, it is up slightly from July’s reading of 2.9%. It will be interesting to see how these results change based on Wednesday’s softer-than-expected CPI report.
Shares are in the green to start Friday’s trading session
Last updated 10:00 AM EST
Stock indices are in the green after 30 minutes of today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 are up 0.2%, 0.4% and 0.7%, respectively.
The energy sector (XLE) is the laggard so far, falling 0.7%. In contrast, the communications sector (XLC) is the leader of the session, with a gain of 0.8%.
WTI crude remains below $100 per barrel, with the price hovering around $92 per barrel. Yesterday’s session saw commodities rally to a high of $95.04 a barrel after the International Energy Agency raised its oil demand outlook. However, today’s price is equivalent to a drop of more than 2% from yesterday’s close.
Meanwhile, bond yields are lower, with the US 10-year Treasury yield now hovering around 2.85%. This represents a decrease of more than three basis points from the previous close.
Similar movements can be seen with the two-year yield, which now stands at 3.23%. However, the spread between the 10-year and two-year US Treasury yields remains negative, currently standing at -38 basis points.
Pre-market update
Stock futures rose in premarket trading on Friday as investors cheered another positive inflation report.
Dow Jones Industrial Average futures (DJIA) gained 0.53%, while those of the S&P 500 (SPX) was up 0.61% as of 4:31 AM EST on Fri. Meanwhile, the Nasdaq 100 (NDX) futures rose 0.70%.
July’s producer price index (PPI) was revealed to have eased to 9.8% from June’s reading of 11.3%, clearly beating the consensus expectation of a rise of prices of 10.4% year-on-year. In particular, the PPI shows a supply-side view of the inflation situation.
Earlier this week, the consumer price index eased the market after registering a price increase of 8.5% year-on-year, which was better than economists had expected.
These two key inflation data together indicate that the highest inflation in four decades has likely peaked and is on the way to a sustained cooling.
At the same time, Thursday also brought us some worrying news. The National Association of Realtors said Thursday that U.S. home prices saw steady growth in the second quarter, despite a decline in buyer demand driven by higher mortgage rates. This was because the supply of housing was still below the demand for housing.
Also, weekly jobless claims for the week ending August 5 continued to rise from March to reach the highest number so far this year. The Labor Department reported 262,000 unemployed workers last week, up from 248,000 registered for the week ending July 29.
Thursday’s mixed economic updates suggest it may be too early to celebrate. The mixed sentiment among investors was reflected in the tepid stock market returns. The S&P 500 and Nasdaq 100 fell 0.07 percent and 0.65 percent, respectively, at the market close on Thursday. Meanwhile, the Dow edged up slightly, closing up 0.08%.
Investors now await data on import prices and the consumer sentiment report due on Friday. These data will give us more information about the financial situation of the economy.
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