The big economic news of last week was June's 9.1% consumer price index (CPI) inflation print, which marked the highest increase since 1981. Decomposing the numbers, an 11.2% June jump in gas prices was mostly to blame, which provides some comfort given oil and gas prices have declined in July.
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The U.S stock market ended the quarter officially in bear market territory, down more than 20% for the year. While there have been multiple factors causing the market to experience its worst first half of the year, since 1970, the cause can really be synthesized into one word: inflation.
Hope everyone had a great 4th of July, post-quarter-end weekend! While the quarter and year have been somewhat ugly from a market performance standpoint, we in America still have much to be grateful for! Happy 245th birthday USA!
The market is in a new phase where bad news is good news. Signs that inflation is moderating as growth cools, helped stocks to rally this last Juneteenth holiday-shortened week, lifting the S&P 500 out of bear market territory. Nearly every sector rebounded with the exception of Energy, as oil prices continue their retreat off record highs.
After a relief rally on the Fed's three-quarter percent (75 bps) interest rate increase, its most aggressive hike since 1994, stocks sold off on renewed recession fears. The S&P 500 Index suffered its worst weekly decline since March of 2020 and entered bear market territory, down 24% below its January peak.
The market was hoping for some sign that inflation was abating, but instead, the May CPI number of 8.6% came in hotter than expected, even higher than April's 8.3% reading. Core CPI, ex-food, and energy climbed 6% which was also higher than estimated. Going into the week, the Fed was expected to raise interest rates by half a point (50 bps), but after Friday's hot number, some are now pricing in a three-quarter point (75 bps) hike.
Stocks retreated from the previous week's rally, as investors continue to question the Fed's ability to rein in inflation without causing a recession.
The S&P 500 and NASDAQ Composite fended off bear market territory and broke a streak of seven consecutive declines on evidence that inflationary pressures could be peaking. The Purchasing Managers Index (PMI) declined to 57.5 in May, down from 59.2 in April (readings above 50 still indicated economic expansion), as strong orders were offset by higher input and output costs.
The S&P 500 Index fell into bear market territory last week, down roughly 20.9% from its January intraday high, on concerns that inflation was curbing consumer spending.
U.S. stocks recorded a second consecutive week of losses as investors question the Fed's ability to achieve a "soft landing", aka taming inflation without killing the economy and plunging it into recession. U.S. inflation data edged down to 8.3% in April but remains close to the fastest pace in 40 years.