By Ramkumar Venkatramani
The S&P 500 index surged by 3.26%, ending last week’s session at 4145.19. The Nasdaq Composite index, which is dominated by technology companies was also up over 3.0%, ending the week at 13047.19. Even the Dow Jones industrial average went up by 2.9%. The market rally extended into the current week with the market going up close to 0.5% on Monday.
The markets have behaved in a jubilant manner ever since the release of the latest inflation numbers. According to the latest data, inflation during the month of July was up 8.5% from the prior year. This was below the estimates and much lower than the June numbers. Year-over-year inflation in June was 9.1%.
Even the US President was elated with the numbers and seemed to feel relieved that the actions to address price raises are working. Some of the drivers of the decline in the rate of inflation were lower gasoline prices, a decrease in used-car prices, and costs of clothing and apparel.
However, food prices continue to remain elevated. With a surprising decrease in inflation numbers, a section of the market believes that inflation has peaked, and the US Fed would, therefore, become less aggressive in hiking interest rates. The Fed has hiked rates by 75 basis points each in the last two meetings. A tamer Fed action would benefit equity markets.
The earnings season continued into the week. Unlike last week, the numbers were a mixed bag.
Technology names like Coinbase, Roblox and Micron came out with poor numbers. On the other hand, a bellwether company, Disney had a bumper quarter with both revenues and earnings surging. Nonetheless, the earnings have largely been on the positive side for the S&P companies. According to data from FactSet, the financial data company, of the 87% of the S&P 500 companies that have reported so far, over three-quarters have reported revenues that were better than consensus estimates.
Looking ahead at the week, several key pieces of US and non-US economic data would be released. Some of the data include Housing market index data for the US, US industrial production data, and retail sales data. Non-US data include GDP growth data for the Euro area, unemployment numbers from the UK and Australia, and inflation data for the Euro area. The economic outlook for non-US developed markets continues to remain lackluster. The US markets, however, seem to be following a different trajectory. We can expect another strong week for the US markets, barring exceptional negative news.
(The author is Lead – Investment Advisory, Kristal.AI)