Market Perspective for August 13, 2023

The first full week of August started off slow but finished with a bang as Consumer Price Index (CPI) and Price Producer Index (PPI) figures were released on Thursday and Friday. The University of Michigan also released its consumer sentiment and inflation expectation figures for the previous month on Friday morning.

As expected, CPI increased on an annual basis to 3.2 percent in July, which was slightly lower than the 3.3 percent forecast by economic experts prior to the release. On a monthly basis, both CPI and Core CPI figures increased by .2 percent, in line with expectations. It was reported that higher gas and housing prices were largely responsible for the uptick in inflation the previous month. In July, it was revealed that inflation had increased by 3 percent on an annualized basis during the month of June.

During the month of July, Core PPI increased by .3 percent while the overall cost of goods also rose by .3 percent. This was higher than the expected increase of .2 percent for both core and overall prices. An increase in the cost of services was cited as the reason for the higher numbers.

The University of Michigan Consumer Sentiment Index fell in July to 71.2 from 71.6 in June. However, it was also revealed that consumers expected the inflation rate this time next year to be 3.3 percent compared to 3.4 percent a month ago. There has been anecdotal evidence in recent weeks that consumers have been changing their spending habits in response to increasing prices and a possible recession.

These figures seem to indicate that consumers may be taking a more cautious approach about the future. According to a poll from IBD/TIPP, less than one out of every five respondents said that their wages were keeping up with inflation.

It’s also worth noting that members of the Federal Reserve are also unsure if a recession can be avoided. Mary Daly, a member of the Federal Reserve, said on Thursday that although inflation figures are going in the right direction, core inflation is still too high. Other members of the Fed have also said that core inflation is too high and that future interest rate decisions will be made based on the data moving forward.

The Federal Open Market Committee (FOMC) will hold its next meeting in September, and there is a clear split between those within the Fed who feel that another rate hike is coming and investors who feel that the Fed will hold the line. Currently, the Fed Funds Rate is between 5.25 percent and 5.5 percent, which is the highest since 2007.

The Dow 30 was held within a relatively tight range this week as it meandered between a low of 35,053 and a high of 35,550. It would hit the low on Tuesday, reach the high on Thursday and then spend most of Friday doing little of note. Ultimately, the Dow would close down .15 percent for the week, which was a loss of 53 points from Monday’s open.

Unlike the Dow, the Nasdaq moved quite a bit this week as it gave up nearly 350 points to close at 13,644. That was a loss of about 2.5 percent over the last five trading days. On Monday, the market opened at its weekly high of 13,987 before moving almost straight down on Tuesday, Wednesday and Thursday. On Friday, the Nasdaq reached its low of the week at 13,614 before easing back up to its final closing price.

Finally, the S&P 500 would open the week at 4,498, reach its high on Wednesday at 4,523 and would hit its low of 4,448 on Friday morning. The index would finish the week at 4,464, which was a loss of .83 percent over the last five trading days.

Next week, retail sales data is set to be released on Tuesday while FOMC meeting minutes from July’s gathering will be made public on Wednesday. On Thursday, unemployment claims data for the week will be revealed. Manufacturing data from New York and Philadelphia will also be made public this coming week.

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