WEEKLY MARKET SUMMARY
Global Equities: Hot inflation data wasn’t enough to derail weekly gains for US equity markets, which featured another all-time high for the S&P 500 index as it rose 1.0%. The Nasdaq Composite also finished positive for the week with a 0.8% gain, but the Dow Jones Industrial Average showed rare outperformance with a 1.8% weekly jump. The outperformance of value stocks is a welcome event for the market, which has been buoyed by tech-oriented growth stocks in recent weeks. With the Nasdaq flashing “overbought” technical indicators, a broadening out of market breadth is a positive sign for stocks. Small Caps also showed relative strength, gaining 3.1% during the weekly session. Foreign Developed stocks were also positive during the week, gaining 2.0%, and Emerging Market stocks gained 1.0%.
Fixed Income: US Treasury yields rose in response to inflation data, despite rate cut odds of over 90% for September. The 10-Year yield ended the week at 4.33%, while the yield on the 30-Year Treasury Bond reached 4.93%. Despite growing concerns of stagflation, investment grade and high yield corporate bonds were positive for the week, both gaining 0.3%.
Commodities: US West Texas Intermediate crude oil ended the week slightly lower at $62.80 a barrel as the first hurricane of 2025 hit the radar. Gold prices slipped to under $3,400 an oz after President Trump denied earlier reports that gold bar imports would be subject to tariffs.
WEEKLY ECONOMIC SUMMARY
Inflation Heats Up: July Consumer (CPI) and Producer (PPI) inflation data was a mixed bag, raising concerns that tariffs are beginning to spur higher prices and cause the Fed to pause on multiple rate cuts this year. The good news was that CPI in July was cooler than expected at 0.2%, equating to a 2.7% annual rate. Core CPI, excluding food and energy, came in slightly hotter than anticipated at 0.3% monthly and 3.1% annually. More concerning was PPI, which shot up 0.9% during the month to an annual rate of 3.3%. Producer prices are typically a leading indicator for consumer prices and most economists anticipate that inflation will pick up again this fall. Immigration enforcement may also be impacting the data, as fresh fruit, vegetables, eggs, and tree nuts rose 12.8% during the month.
Retail Sales Remain Strong: The US consumer remained strong in July, attributable to strong motor vehicle sales and summer promotions from Amazon (AMZN) and Walmart (WMT). June’s data was also revised upward. While the data suggests consumers are still spending freely, some of the behavior may be attributable to shoppers seeking to get ahead of higher expected inflation. The University of Michigan Consumer Sentiment survey showed year-ahead inflation expectations rose from 4.5% in July to 4.9% in August.
Earnings Update: It was a relatively light week for earnings news, but there were some companies of note. Deere (DE) posted lower quarterly profit and dropped guidance, sending shares down -6%. Cisco (CSCO) beat estimates and kept guidance unchanged, but shares were down -1% in response. With 90% of the S&P 500 reporting quarterly results, 81% of the index has beaten estimates for both revenue and earnings per share. Next week several large retailers report, including Walmart (WMT), Target (TGT), and Home Depot (HD).
CHART OF THE WEEK
The Chart of the Week shows the unexpectedly large increase in the Producer Price Index (PPI), which sparked concerns that higher consumer prices will follow. Also of concern was that the inflation was not just in goods, but also in services, which rose 1.1% during the month. PPI data is trending in the wrong direction, up at an annualized rate of 5.2% over the past three months. Investors are pricing in a September rate cut as a near certainty, but the decision could be closer than many expect with several Fed members expressing concerns over the revival of inflation.
