The stock market posted its fourth straight weekly advance, the longest consecutive weekly rally of 2022. Investors turned to stocks on the premise that the Federal Reserve may reduce the pace of its economic tightening campaign after three major indicators showed that inflation subsided in July. With this week’s performance, the S&P 500 has recouped half of its losses from the beginning of the year. The Nasdaq has risen over 20.0% from its low in June. With corporate earnings season about finished, traders are now assessing the direction of the economy. Even if the Fed continues its hawkish push to get inflation down to the 2.0% target, the economy has thus far been resilient, with the labor market continuing to show strength while corporate earnings have been generally positive. Crude oil prices have remained under $100.00 per barrel for three weeks, gold prices have nearly recovered all their losses from the beginning of the year, and consumer sentiment is on the rise. By the end of last week, all the major stock market benchmark indexes climbed by at least 2.9%, led by the Russell 2000, which rose nearly 5.0%. Ten-year Treasury yields broke even, crude oil prices increased nearly 4.0%, gold prices advanced about 1.5%, and the dollar slipped marginally.
Last Week’s Economic News
- Inflation slowed more than expected as the Consumer Price Index was flat in July after increasing 1.3% in June. The CPI is up 8.5% since July 2021, down from 9.1% for the 12-month period ended in June.
- The Producer Price Index for July fell 0.5% after advancing 1.0% in June. For the 12 months ended in July, producer prices are up 9.8%.
- Import prices slid 1.4% in July after advancing 0.3% in June. Export prices also declined in July, dropping 3.3% following a 0.7% increase in June.
- The Treasury deficit for July increased to $211.1 billion, up from the June deficit of $88.8 billion but lower than the $302.1 billion deficit in July 2021. Through the first 10 months of the fiscal year, the deficit sits at $732.5 billion. Over the same period last fiscal year, the deficit was $2.540 trillion.
- The national average retail price for regular gasoline was $4.038 per gallon on August 8, $0.866 higher than a year ago.
- For the week ended August 6, there were 262,000 new claims for unemployment insurance, an increase of 14,000 from the previous week’s level.
Eye on the Week Ahead
Housing data for July is out this week. Rising mortgage rates and overall inflationary pressure have subdued the housing sector. Housing starts for new home construction were down 6.3% from June 2021, with starts for single family homes down 15.7%. Sales of existing homes have fallen, down 14.2% over the last 12 months. The Federal Reserve’s industrial production report for July is also available this week. Overall production fell 0.2% in June, with manufacturing down 0.5%.
Have a nice week!
Sincerely,
Robert G. Carpenter