Short On Time… Executive Summary
The market is stuck on inflation worries. Last week we saw a weaker than expected jobs report and the market went up. Why? Well, it takes some wind out of the inflation hawks’ sails. The Fed has a dual mandate. They are supposed to help moderate inflation and promote steady employment. You can’t hike rates and take money away from businesses and expect employment to get better. Also, we are seeing inflation moderate in real time as oil prices have pulled back from their peak. Oil prices and inflation were increasing in the month of July mostly as a result of the on-again off-again phantom deals with Iran.
The inflation numbers for July come out Wednesday and I suspect they will show an increase, but the year-over-year number may drop a bit as it was higher last July. Of course, this is looking in the rear-view mirror, but the market is all worked up over inflation. So, we may see more volatility if the number is what the market would consider negative. Regardless of whether the number is a bit hot I don’t see the Fed hiking interest rates anytime soon for a myriad of reasons. Since the beginning of August, real time inflation has been trending downward with oil prices. This is all noise. Corporate earnings have been good and are growing. This is why stock prices increase. We’ll keep an eye on unemployment, but that’s a further down the road issue, not a now problem.
The Week On Wall Street
Stocks bolted ahead last week as investors cheered the last big week of Q2 corporate reports and a Friday jobs update that put the spotlight on the Fed's next move with short-term rates. The Standard & Poor's 500 Index advanced 3.57 percent, while the Nasdaq Composite Index gained 5.19 percent. The Dow Jones Industrial Average rose 2.96 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, added 2.32 percent.
Best Week in Nearly 4 Months
Stocks opened the week strong as oil prices slid on news of diplomatic efforts in the Middle East. Big Tech led, which helped push the Dow Industrials to a record close. Investor optimism continued to build on Tuesday as stocks opened higher and climbed throughout the day. Strong Q2 corporate reports added fuel to the rally, lifting all three averages into a second day of robust gains. Markets opened higher on Wednesday but lost momentum as the day progressed. On Thursday, oil prices crept higher, and stocks went sideways as investors awaited updates on the Middle East and digested the final big trove of Q2 corporate results. Then, on Friday, an unexpected contraction in the labor market boosted stocks as investors hoped the jobs data might influence the Fed's outlook for short-term rates. Each major average logged its best weekly gain since mid-April.
Labor Market Update
The economy unexpectedly shed 23,000 jobs in July, based on the Labor Department's report released Friday. Economists expected 83,000 jobs to be created. July's decline was the first monthly contraction in the labor market since February. Additionally, the number of jobs added in May and June was revised down by 103,000, reinforcing evidence of a cooling job market. Meanwhile, unemployment edged down to 4.1 percent as fewer people looked for work.
This Week: Key Economic Data
Tuesday: NFIB Small Business Optimism Index. Existing Home Sales. New York Fed Q2 Household Debt & Credit Report.
Wednesday: Consumer Price Index (CPI). Monthly Treasury Balance.
Thursday: Fed Speeches: Beth Hammack (Cleveland) and Thomas Barkin (Richmond). Weekly Jobless Claims. Producer Price Index (PPI).
Friday: Retail Sales. Manufacturing & Trade: Inventories. University of Michigan Consumer Survey.
This Week: Companies Reporting Earnings
Stay tuned...
