Stock and Bond Markets Welcomed Weakening Inflation

Barry Adams
10 Aug, 2023
New York City

Stocks on Wall Street traded higher after the release of the consumer inflation report . 

Market averages popped and Treasury yields held stable with a downward bias after the consumer price index rose 3.2% in July and core inflation edged lower to 4.7%, far above the Fed's target rate of 2%. 

On a monthly basis, seasonally adjusted inflation rose 0.2%, the U.S. Bureau of Labor Statistics reported Thursday. 

The inflation index, which understates price increases felt by most urban families, has gone up and down largely following the trajectory of crude oil prices. 

Consumer inflation peaked at 9.1% in August and ever since it has been on the slide reflecting weakness in the crude oil prices, which declined at a slower pace of 12.5% in July after falling at 16.7% in June.  

Markets reacted positively to the report and investors hoped that the latest inflation data may provide one reason to pause rate hikes at the next meeting. 

The good news on the inflation front was also outweighed by the recent rise in crude oil prices, stoking fears of another bout of inflation at pump stations and at grocery stores. 

At least in the last month, it was the cost of housing that drove the 90% increase in inflation.

Shelter cost jumped 0.4% on a monthly basis and rose 7.7% from a year ago,  and housing cost weighs only one third in the CPI, the BLS noted in the report today.

On the employment front, real wages rose 0.3% from the previous month or increased 1.1% from a year ago, slower than overall inflation, the BLS reported in a separate report today. 

While inflation is moving in the right direction and it has eased considerably from the 40-year high of 9.1% in June 2022, inflation is still above the Fed's target rate of 2%. 

Moreover, much of the decline in inflation is because of base-effects and not Fed's doing, because rates are still not restrictive enough to slow economic growth. 

Initial claims for jobless benefits rose 21,000 from the previous week to 248,000 in the week ending on August 5, the U.S. Department of Labor reported Thursday. 

 

U.S. Indexes & Yields 

The S&P 500 index traded up 0.7% to 4,502.25 and the Nasdaq Composite gained 0.8% to 13,835.40. 

The yield on 2-year Treasury notes increased to 4.78%, 10-year Treasury notes inched lower to 4.02% and 30-year Treasury bonds edged down to 4.30%. 

Crude oil decreased $0.87 to $83.56 a barrel and natural gas prices decreased 16 cents to $2.79 a thermal unit. 

 

U.S. Stock Movers 

Six Flags Entertainment Corp decreased 1.9% to $22.45 after the amusement park operator reported  weaker-than-expected quarterly results. 

The company reported revenue of $444 million and earnings of 25 cents a share and the company blamed the decline in earnings to higher reserves for self insurance. 

Walt Disney Co increased $90.03 after the media and theme park operator reported a rare quarterly loss and the company said it will crack down on password sharing and lift prices on its free streaming services. 

Alibaba Group Holding Ltd jumped 4.7% to $100.21 after the China-based e-commerce company reported better-than-expected earnings and revenue surged 14%, the best in two years. 

Tapestry Inc dropped 12.5% to $36 after the apparel company agreed to acquire Capri Holdings, the parent of Versace, for $8.5 billion or $57 a share in cash. 

Capri Holdings jumped 56.5% to $54.20. 

AppLovin Corp jumped 26.2% to $37.15 after the game developer reported better-than-expected second quarter earnings of 22 cents and forecasted stronger-than-expected revenue between $780 million and $800 million.