S&P 500, Dow 30, and Nasdaq futures are in green after the July CPI data was announced. The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis after rising 1.3 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.5 percent before seasonal adjustment.
In fact, in the short term, the market was lacking direction and waiting for the right clues to decide on the next course of action. The last 5-day trading session of the S&P500 shows almost zero percent movement in the index values. US stock indices are all in green and up by over 1.5 percent in the opening hours of the trade.
July 2022 CPI data were scheduled to be released on August 10, 2022, at 8:30 A.M. Eastern Time.
For June 2022, the US inflation rate was 9.1 percent while in May it was 8.6%. The U.S. Bureau of Labor Statistics reported that Consumer Price Index for All Urban Consumers (CPI-U) had increased 1.3 percent in June on a seasonally adjusted basis after rising 1.0 percent in May.
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Equities are considered to be the best against inflation. However, the irony is that the rising inflation is resulting in the meltdown of the stock market. Since January 2022, the US market has been sliding down albeit for the month of July when the values reversed. Runaway inflation is not good for the economy and the central bank has to step in by raising rates. So far, Fed has raised rates by 225 basis points and further hikes are on the cards.
The short-to-medium term impact of rate hikes is on the valuations that the stocks enjoy and also on the earnings of the corporations. On top of it, the growth in the economy suffers which has already been reflected in the GDP numbers of the last two quarters. Meanwhile, the recent jobs data show a strong employment sector which signals that the Fed may not shy away from raising rates further so as to tame inflation entirely.
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Will the July CPI numbers show that the inflation is cooling down? If so, the next thing to evaluate will be the Fed’s next action – whether there be a pause in rate hike or a quick round of rate cuts. The market volatility may remain till the FOMC meeting in September.