Dow jumped 424 (session high), advancers over decliners 4-1 & NAZ was up 267. The MLP index settled 1+ higher to the 215s & the REIT index went up 6+ to 450. Junk bond funds rose along with stocks & Treasuries continued strong, reducing yields. Oil dropped 2+ to the 91s & gold added 10 to 1817 (more on both below).
AMJ (Alerian MLP Index tracking fund)
The rapid pace of inflation eased in Jul for the first time in months, but the slowdown in price gains is likely not enough for the Federal Reserve to take its foot off the brakes as it tries to cool the US economy & tame rising costs. The Labor Dept reported that the consumer price index rose 8.5% in Jul from a year ago, below the 9.1% year-over-year surge recorded in Jun. Prices were unchanged in the one-month period from Jun. The core measure – which strips out food & energy – climbed 0.2% in Jul & 5.9% from the previous year, a marked slowdown from Jun. While the moderation is likely a welcome respite for the Fed as it tries to wrestle inflation under control, consumer prices still remain at a painful, multi-decade high. On top of that, the Labor Dept reported last week that employers unexpectedly added 528K jobs in Jul – nearly double the estimate – suggesting the economy is still red-hot. Fed policymakers have signaled in recent days that they remain inclined to approve another mega-sized interest rate hike – either 50 or 75 basis points – when they meet in Sep. There will be another round of inflation & jobs data before the meeting on Sep 20-21. "I still think 50 basis points is the case, but I am open to 75 should the data evolve differently," San Francisco Fed Pres Mary Daly said. She added that while the Jul figures are "significant… they're not victory." "It really behooves us to stay data dependent and not call it," she added. Traders are split over how big the Fed may go in Sep, with 55% pricing in a chance of a 50 basis point increase & 45% putting their money on a 75 basis point hike in the fall, according to the CME Group's FedWatch tool.
Despite positive inflation data this week, Richmond Federal Reserve Pres Thomas Barkin said that more interest rate increases will be needed to tamp down price pressures. Releases this week showing that consumer & wholesale price increases softened in Jul were “very welcome,” Barkin said. “So we’re happy to see inflation start to move down,” he added. But he noted that, “I’d like to see a period of sustained inflation under control, and until we do that I think we’re just going to have to continue to move rates into restrictive territory.” Headline consumer prices were flat in Jul while producer prices declined 0.5%, according to the Bureau of Labor Statistics. However, that was just one-month's data: CPI still was up 8.5% on a year-over-year basis & the producer price index climbed 9.8%. Both numbers are still far above the Fed's 2% long-run inflation objective, so Barkin said the central bank needs to keep pushing forward until it achieves its goal. “You’d like to see inflation running at our target, which is 2% at the PCE, and I’d like to see it running at our target for a period of time,” he continued. The Fed uses as its preferred gauge the personal consumption expenditures price index; Jun headline PCE ran at a 6.8% annual rate while core excluding food & energy was at 4.8%. Barkin's comments reflect those of most Fed officials who have spoken recently about rates.
The average American is shelling out an extra $717 a month because of the hottest inflation in decades, according to a new analysis from the Joint Economic Committee Republicans (JEC). The financial squeeze stems from the rising cost of a number of everyday goods, including cars, rent, food & health care. While the rapid pace of price increases eased slightly in Jul, the consumer price index still climbed 8.5% from the previous year – hovering near a painful, 4-decade high, the Labor Dept. The JEC – who launched the State Inflation Tracker in Apr to monitor how much higher prices are costing Americans across the US – calculated the figure by comparing prices for goods & services in Jul versus how much households would have paid for those same items in Jan 2021, when inflation was 1.4%. "While prices did not change from June to July 2022, prices increased 13.3% from January 2021 to July 2022, costing the average American household $717 in July 2022 alone," the analysis said. Even if prices stopped increasing altogether, the inflation that already occurred between Aug 2021 & Jul 2022 would cost the average American household an extra $8607. Scorching-hot inflation has created severe financial pressures for most US households, which are forced to pay more everyday necessities like food & rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations. Although American workers have seen strong wage gains in recent months, inflation has eroded those entirely. Real average hourly earnings actually decreased 0.5% in Jul from the previous month when accounting for higher consumer prices, according to the Labor Dept On an annual basis, real earnings actually dropped 3% in Jul.
Gold prices closed higher, helping the yellow metal clinch a 4th straight week of gains & adding to a rally that started late last month after the Federal Reserve announced its latest interest rate increase. Gold also posted its longest streak of weekly gains for the most-active contract in seven months, Gold contracts expiring in Dec rose $8 (0.5%) to settle at $1815 per ounce, with the most-active contract sweeping to a 4th straight weekly advance, its longest run this year, Gold booked another weekly gain, even as the $ climbed today. Looking ahead, investors will be awaiting the release of the Federal Open Market Committee’s minutes, expected to be released next Wed.
Oil futures ended lower after news reports indicated supply disruptions in the Gulf of Mexico were likely to be short lived. The pullback cut into weekly gains attributed to easing worries about recession in Europe & the US in particular. West Texas Intermediate (WTI) crude for Sep fell $2.25 (2.4%) to close at $92.09 a barrel, leaving the US benchmark with a 3.5% weekly rise. Oct Brent, the global benchmark, was off 76¢ (0.8%) at $98.84 a barrel, for a 4.1% weekly advance. A Louisiana official said a damaged oil-pipeline component was due to be replaced by the end of the day, The damaged flange had disrupted flows from offshore platforms in the Gulf. The number of US oil rigs last week rose by 3 to 601 this week, according to oil-field services firm Baker Hughes. The energy complex was previously in bounce mode after WTI fell more than 9% last week & Brent dropped 8.7%. Crude oil subsequently found a footing after last Fri's strong US jobs report & inflation data this week that showed price pressures moderating. That was boosting hopes that the Federal Reserve wouldn't need to raise interest rates as aggressively as feared, potentially leaving room for policy makers to rein in still red-hot inflation without sending the economy into recession.
After investors have seen a lot selling this year, Dow rose an amazing 2400 in the last 4 weeks. Another way to look at the advance is it returned to where it was in early May (see below). It's still down over 4K YTD. High inflation remains a huge problem. Even if WTI sloshes around the lows 91s, high priced gas is being felt by many. The Fed has its work cut out to reduce inflation while not bringing on a significant recession. For the time being investors are feeling better than they have in recent weeks. Have a good weekend!!
Dow Jones Industrials