Wall Street broke its losing streak last week as investors bet the market sell-off had bottomed after surrendering half its summer rally. Inflation fears are also moderating as oil prices declined—hitting their lowest level since Russia’s invasion of Ukraine—helping reset inflation expectations.
Stocks finished lower heading into the Labor Day weekend, as investors were still trying to digest the implications of the Fed's hawkish tone coming out of Jackson Hole. The S&P 500 extended the losing streak that started with Jerome Powell's speech on August 26th.
Stocks sold off last week on rate worries thanks to the hawkish tone coming out of the Kansas City Fed's annual conference in Jackson Hole, Wyoming.
Stocks gave back a portion of last week's gains after hawkish Fed member James Bullard openly questioned whether inflation has really peaked. The week's economic data also gave fuel to the fear, as retail sales rose 0.7% in July ex-energy and autos.
The much-awaited CPI inflation report came out last Wednesday, and while CPI is still at a YOY level of 8.5%, it was zero for the month of July, giving investors hope that inflation has peaked.
U.S. equities were mostly higher last week, despite 4 out of the 5 S&P 500 sessions being negative. Growth stocks outperformed value names. Treasuries were weaker with the yield curve flattening in a crazy week that saw the 10-year drop as low at 2.5% before ending the week at 2.8%.
Markets posted solid gains last week as the Fed raised interest rates by another 75 basis (0.75%) points as expected. Second quarter GDP was negative for the second consecutive quarter, coming in at -0.9%. In a "bad news is good news" scenario, investors are betting the Fed will need to be less aggressive going forward with rate hikes to fight inflation.
Signs of a cooling economy and fading inflationary pressures boosted investor sentiment last week. Risk-on assets like small cap and tech outperformed, and consumer discretionary stocks rallied as well.
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.
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.
