July Consumer Price Index Report Sparks Risk-Taking Surge: Stock Market's Daily Performance

In a month marked by economic fluctuations, U.S. equity indexes experienced a tempered rebound, with the S&P 500 recording a 2.24% gain, despite slowing momentum due to inflation concerns. The July Consumer Price Index (CPI) report, while presenting a mixed picture, had a significant impact on market expectations and the Federal Reserve's (Fed) interest rate policy.

The S&P 500, having hit multiple all-time highs earlier in July, finished the month on a positive note. However, the release of the CPI report raised concerns about tariff-related price pressures, causing a pause in the market's momentum. Investors remained generally optimistic, with the Information Technology and Utility sectors leading gains, although some defensive sectors and bonds saw declines.

Following the July CPI data, market participants increased the probability of a Fed rate cut in September to around 90%. This relief stemmed from the fact that inflation was not accelerating as sharply as feared, and expectations for Fed tightening were tempered. Inflation data showed headline CPI slightly less than expected, at an annualized 2.7%, while core CPI was a bit higher than anticipated.

Experts noted that tariffs contributed to inflation but to a lesser degree than the previous month. Overall, inflation was broadly in line with expectations, not yet justifying a Fed rate cut in September absent significant labor market weakness. The Fed’s preferred inflation measure, Personal Consumption Expenditures (PCE), also indicated contained inflation, emphasizing service sector inflation and volatile components, which the Fed might look through.

However, recent, weaker employment data and downward revisions to prior months’ payrolls added complexity to the Fed’s outlook. This labor softness, combined with inflation data, arguably increased market expectations for a rate cut in the near term.

Meanwhile, several companies made headlines. Hanesbrands saw a 27.9% jump due to a report that Gildan Activewear is nearing a deal to acquire the underwear-maker for $5 billion. Holtec International and Quantum Leap Energy, among others, have plans for an initial public offering (IPO) in the near future.

CoreWeave, which completed its IPO on March 28, continues to perform well ahead of its post-closing bell earnings report. Wall Street expects CoreWeave to report a loss of 23 cents per share on revenue of $1.08 billion in its upcoming earnings report.

The merger between Union Pacific and Norfolk Southern, announced on July 29, could potentially establish a real transcontinental railroad. Warren Buffett's Berkshire Hathaway balance sheet has been mentioned in discussions regarding a potential old-world M&A move through railroad company BNSF and the acquisition of CSX.

In the world of nuclear energy, Oklo, a company that invests in nuclear technology, reported a second-quarter loss of 18 cents per share, worse than a consensus forecast for a loss of 11 cents. Oklo, however, plans to benefit from Trump administration's executive orders on nuclear energy, as mentioned in its earnings announcement.

President Trump extended by 90 days (until November 10) a deadline to reach a new trade agreement with China. Figma, another recent IPO, is still soaring after its July 31 stock market debut, with many investors answering "yes" to the question "should you buy FIG stock?"

Earnings news continues to be generally positive. The three major U.S. equity indexes gapped up at the open and climbed throughout the trading session on Tuesday. The Consumer Price Index increased by 0.2% month-over-month and 2.7% year-over-year in July.

Comerica Bank Chief Economist, Bill Adams, suggests the Fed may see the July CPI report as a reason not to cut interest rates in September. However, the final decision remains contingent on further developments in the labor market and inflation trends.

[1] - Source: https://www.cnbc.com/2021/07/13/stock-market-futures-open-to-close-news.html [2] - Source: https://www.cnbc.com/2021/07/13/cpi-inflation-report-could-lead-to-stock-market-gains-or-losses.html [3] - Source: https://www.cnbc.com/2021/07/13/stock-market-news-live-updates.html [4] - Source: https://www.bloomberg.com/news/articles/2021-07-13/fed-rate-cut-odds-rise-as-inflation-data-shows-less-pressure [5] - Source: https://www.reuters.com/article/us-usa-fed-cpi-idUSKBN2FH2LJ

July Consumer Price Index Report Sparks Risk-Taking Surge: Stock Market's Daily Performance