An improving inflation outlook buoyed investors’ spirits last week, helping lift stocks to solid gains.
The Standard & Poor’s 500 rose 3.26%, while the Dow Jones Industrial Average advanced 2.92%. The Nasdaq Composite index added 3.08% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 2.39%.1,2,3
Lower Inflation Spurs Buying
Stock prices surged mid-week when the U.S. Bureau of Labor Statistics released a better-than-expected Consumer Price Index (CPI) number, with buying momentum building throughout the trading session.
Gains were significant across the board, with technology and small-cap companies leading the market higher. The mid-week rally sent the S&P 500 to its highest level since May and the Nasdaq to its highest level since April. Bond yields fell on expectations that the Fed's pressure to hike rates further might ease. After pausing on Thursday, stocks again ripped higher on Friday, aided, in part, by a report indicating improving consumer sentiment.4
The Consumer Price Index in July was softer than expected, with prices unchanged from the previous month thanks to a 4.6% decline in energy prices and a 7.7% drop in gasoline.4
Despite the encouraging results, the CPI report still looks back to what was happening over the last 12 monthe, thus some naysayers will focus on the the year-over-year inflation rate, which remained at 8.5%, while the core CPI (excluding food and energy) came in at 5.9%.
Producer prices fell 0.5% in July, suggesting that future consumer price increases may continue to moderate.5,6
Recent weeks have been a classic example of a "relief rally." That means the pessimists drove prices down for too long, and neither actual economic data nor corporate profit reports came in as bad as some expected.
Why does this happen? Investors often get confused between their own economic situation and the realities of corporations. Many companies (certainly not all) are not hurt much by inflation because they can raise prices. The truth is that overall corporate profits will continue to grow in spite of inflation. The real thing to worry about is a recession next year (we are not in one now.) I will let you know as soon as I see signs of that.
This Week: Key Economic Data
Tuesday: Industrial Production. Housing Starts.
Wednesday: Retail Sales. Federal Open Market Committee (FOMC) Minutes.
Thursday: Jobless Claims. Existing Home Sales. Index of Leading Economic Indicators.
Source: Econoday, August 12, 2022
This Week: Companies Reporting Earnings
Tuesday: Walmart, Inc. (WMT), The Home Depot, Inc. (HD).
Wednesday: Cisco Systems, Inc. (CSCO), Target Corporation (TGT), Lowe’s Companies, Inc. (LOW), The TJX Companies, Inc. (TJX).
Thursday: Applied Materials, Inc. (AMAT), NetEase, Inc. (NTES).
Friday: Deere & Company (DE).
Source: Zacks, August 12, 2022
"You can’t destroy knowledge. You can stamp it under and burn it up and forbid it to be, but somewhere it will survive."
– Leigh Brackett
Help Get Your Federal Withholding Correct With This Tool From the IRS
The IRS has a handy tool called the IRS Tax Withholding Estimator that can help taxpayers better understand their withholding. It’s essential to examine your federal withholding periodically to ensure you are comfortable with the amount of tax withheld.
Checking your withholding status may be a good idea to consider if you have experienced a change that may affect your tax status, such as:
* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov7
What is Sleep Hygiene?
We all want a better night’s sleep, and your sleep hygiene routine might impact the amount and quality of shut-eye you get. Sleep hygiene refers to your habits to get a good night’s sleep. The better your habits, the better your chances are of improving your sleep.
Here are some good sleep hygiene tips:
Tip adapted from the Centers for Disease Control and Prevention8
Trains travel from one town to another town all day, always on the same track, always going nonstop and at the same speed. The noon train took 80 minutes to complete the trip, but the 4 PM train took an hour and 20 minutes. Why?
Last week’s riddle: Just two U.S. states have capital cities whose names include the full name of the state. What states are they? Riddle answer: Riddle answer: Indiana (Indianapolis) and Oklahoma (Oklahoma City).
Torres del Paine National Park, Magallanes Region, Chile
Footnotes and Sources
2. The Wall Street Journal, August 12, 2022
3. The Wall Street Journal, August 12, 2022
4. CNBC, August 10, 2022
5. CNBC, August 10, 2022
6. CNBC, August 11, 2022
7. IRS.gov, April 28, 2022
8. CDC.gov, May 26, 2022
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The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
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Weekly Market Insights: Stocks Have 4th Straight Winning Week as Inflation Cools
August 15, 2022