Dow went up 217 but below early highs, advancers over decliners 5-2 & NAZ gained 88. The MLP index crawled up to the 236s & the REIT index added 1+ to the 374s. Junk bond funds edged higher & Treasuries had limited buying, lowering yields (more below). Oil slid back to the 83s & gold was off 1 to 1949.
AMJ (Alerian MLP Index tracking fund)
Inflation ticked higher in Jul, snapping a year-long streak of steady declines in prices as consumers continued to grapple with the rising cost of everyday goods. The Labor Dept said that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries & rents, rose 0.2% in Jul from the previous month, in line with estimates. Prices climbed 3.2% from the same time last year, up from 3% in Jun but slightly below the 3.3% forecas. It marked the first acceleration in the headline figure in more than a year, underscoring the challenge in taming high inflation. Other parts of the report also pointed to a slower retreat for inflation. Core prices, which exclude the more volatile measurements of food & energy, climbed 0.2% annually. Both of those figures are in line with expectations. However, core prices remain well above the Federal Reserve's 2% target for inflation. Scorching-hot inflation has created severe financial pressures for most households, which are forced to pay more for everyday necessities like food & rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations. Consumers continued to see some reprieve in Jul. The price of used cars & trucks tumbled 1.3% over the month & are down 5.6% compared with the same time one year ago. Airline tickets also plummeted 8.1% in Jul, following declines in Apr, May & Jun. Other price gains proved persistent & stubbornly high in Jul. Shelter costs, which account for about 40% of the core inflation increase, rose 0.4% for the month & are up 7.7% over the past year. Energy prices also increase 0.1% last month, including a 0.2% uptick in gasoline costs. Gas prices are down about 19.9% compared with the same time last year, when the average cost for a gallon of regular was running around $4.01. Food prices, a visceral reminder of inflation for many Americans, also inched higher in Jul. Grocery costs rose 0.3% last month & are up 3.6% compared with the same time last year.
Americans not out of the woods yet as inflation creeps back up
The nonpartisan Congressional Budget Office (CBO) announced that the federal gov's budget deficit more than doubled through the first 10 months of the current fiscal year compared to a year ago. In
its latest budget review, the CBO found that the
federal deficit was $1.6T in the first 10 months of fiscal year
2023, a significant increase over the $726B deficit the federal
gov incurred in the same period last year. The CBO noted that federal spending was 10% higher during the reporting
period than it was a year, while tax revenues came in 10% lower, which
combined to cause the deficit to widen.
As a result, the CBO now expects the federal deficit for FY2023 will be
about $1.7T, $200B larger than the forecast it
issued in May. Maya MacGuineas, pres of the nonpartisan Committee for a
Responsible Federal Budget, said, "With just two months
left in the fiscal year, we’ve now borrowed $5.3 billion per day and
have already surpassed all of last year’s deficits. The deficit this
year and next year are on track to be 50 percent larger than before the
pandemic, despite the fact that the pandemic is over and the economy
seems to be growing at a steady clip." A federal budget deficit of
$1.7T would be one of the largest on record, & it comes even
as many COVID-19 pandemic relief programs have concluded, which caused
the largest deficits in US history due to the elevated spending &
reduced economic activity that diminished tax revenues. The US ran a record-setting deficit of more than $3.1T in FY2020 after Congress approved Ts of $s of new spending on temporary COVID-19 programs on a
bipartisan basis, including those under the CARES Act in the early
weeks of the pandemic-induced lockdowns. Many of those programs continued into the following year when Biden took
office & Dems used their majorities in Congress to enact the
$1.9T American Rescue Plan Act along party lines. Those factors
combined to keep the FY2021 deficit over $2.7T. The deficit narrowed further to nearly $1.4T in FY2022 as
more pandemic spending came to an end, although that was still the 4th-largest annual deficit in US history, trailing only the 2
prior years & an FY2009 deficit that narrowly exceeded $1.4T
amid the financial crisis. The CBO’s updated deficit projections come after Fitch Rating's recent decision to downgrade the US gov's credit rating from ‘AAA’ to ‘AA+,’ which could increase the gov's borrowing costs. Fitch
cited an "erosion of governance" characterized by partisan standoffs
over fiscal policies & the debt limit as a contributing factor in its
downgrade decision, in addition to an "expected fiscal deterioration
over the next three years." Fitch noted that it expects the
federal gov's deficit to rise to 6.3% of GDP in 2023 & 6.9% of GDP in 2025, driven by weak economic growth & higher interest costs associated with servicing the more than $32T US national debt.
Federal deficit more than doubled to $1.6T in the first 10 months of FY2023
Treasury yields moved broadly lower as the Jul consumer price index report provided another encouraging sign that inflation is abating. The 10-year Treasury yield was down 2 basis points to 3.984% & the 2-year Treasury yield fell 3 basis points to 4.768%. Yields move opposite of prices & a basis point is equal to 0.01%. The CPI report showed that prices rose 3.2% year over year, a tick below the 3.3% forecast. The 0.2% month-over-month change in prices was in line with estimates. Shelter inflation, which is seen by many economists as lagged data that will fall sharply in the coming months, was the biggest contributor to the increase, the Labor Dept said. Markets are largely betting the Federal Reserve will hold rates steady at its next meeting on Sep 20. But some people, including Federal Reserve Bank Governor Michelle Bowman, believe the current hiking cycle may not be over yet.
Treasury yields slide after July CPI report
The market response to today's news was muted. Stocks jumped on the CPI news but has lost about ½ that gain already. Higher interest rates will be a drag on any market advance & comments by Fitch on its downgrade for US rating is a large cloud hanging over the stock market.
Dow Jones Industrials
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