Stocks climbed as a steady inflation report kept hopes alive for a Fed rate cut next month.
The S&P 500 notched its fifth consecutive day of gains, led by financial and energy stocks, while the dollar hovered near a four-month low.
Treasuries saw modest shifts, reflecting a market catching its breath after last week’s turbulence.
The latest Consumer Price Index (CPI) report reinforced the disinflation trend, providing a much-needed breather to markets rattled by recent volatility.
As the job market softens, the consensus among the business community is that the Federal Reserve will begin trimming rates in September, though the extent of the cut is still up in the air.
“It wasn’t as cool as yesterday’s PPI, but today’s CPI won’t rock the boat,” said Chris Larkin of E*Trade at Morgan Stanley.
“The key question now is whether the Fed will opt for a 25 or 50 basis point cut next month. If upcoming data points to a slowing economy, we might see a more aggressive move.”
Krishna Guha of Evercore added, “July’s CPI wasn’t perfect, but it was consistent with the Fed’s broader inflation outlook.
This isn’t just about one data point; it’s about the bigger picture, with job market risks now overshadowing inflation concerns.”
As the S&P 500 flirted with the 4,500 mark, Wall Street’s fear gauge, the VIX, dipped below 17—a stark contrast to last week’s spike above 65.
Tech giants like Nvidia Corp saw gains, while Alphabet dipped, reflecting the market’s mixed sentiment.
“The market’s stress is fading,” observed Mark Hackett of Nationwide. “With macro fears easing, share buybacks returning, and momentum stabilizing, equities have a stronger foundation.”
Strategists at TD Securities noted, “Today’s CPI checked the box for a September rate cut. The real question now is the size of that cut, with risks tilting towards employment concerns.”
For Chris Zaccarelli of the Independent Advisor Alliance, the July CPI is the epitome of “no news is good news.”
“The market’s been on edge, but this report gives the Fed no reason to change course on rate cuts.”
Neil Birrell at Premier Miton Investors agreed, noting, “This is a case where dull news is good news, giving the Fed some breathing room ahead of their next meeting.”
Seema Shah of Principal Asset Management commented, “This CPI print clears the way for the Fed to start cutting rates, though it doesn’t suggest an urgent need for a 50 basis-point cut.”
Florian Ielpo of Lombard Odier Investment Managers echoed this sentiment, saying, “The soft CPI report offers little new, aside from reinforcing job market concerns that could support a rate cut.”
Bloomberg Economics added, “Even though July’s core PCE inflation won’t be as favorable, the Fed is likely to cut rates in September due to rising unemployment.”
Traders are currently pricing in over a percentage point of rate reductions for 2024, with three Fed meetings left this year.
The debate now hinges on whether September’s cut will be 25 or 50 basis points.
“The inflation data is good enough for a September cut, but not enough to justify a larger one,” said Brian Rose of UBS Global Wealth Management. “The August labor report might tip the scales.”
Thursday’s retail sales data is another key piece of the puzzle.
As BlueBay’s Neil Sun noted, “The U.S. economy is cooling steadily, and while the labor market shows signs of slowing, we’re not overly worried about a near-term recession. We’ll stay ready to seize opportunities if the cooling trend continues.”
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