Weekend Update #242
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Equity markets extended gains this week as investors percieve that a resilient demand environment and an expected 50 basis points of rate cuts to end 2025 will be supportive of equity valuations. Markets continue to rapidly respond to economic data with volatile reactions to positive CPI and Retail Sales and disappointments in PPI and Consumer Sentiment. U.S. Treasury Secretary stated this week that economic modeling shows the Fed should cut interest rates by 150-175 basis points, which spurred some market optimism about an easier monetary policy environment. Trade deal announcements, pricing passthroughs to consumers from tariff implementation, job market strength, and FOMC interest rate decisions will all continue to be key focuses for market participants.
In economic data for the week, closely-watched CPI data showed inflation was up 0.2% month-over-month and 2.7% year-over-year in July, in line with economists’ estimates. Goods prices haven’t shown significant inflationary pressures following U.S. tariff announcements, and inversely, categories showing acceleration of prices in July were mainly in the services segment. The PPI report for July was a stark contrast to CPI, showing the hottest monthly pace of producer input pricing since June 2022 at 0.9% and an annual pace of 3.3%. The dichotomy suggests that, for now, producers may be bearing the brunt of tariff-related costs, but those could soon be passed onto consumers. Initial Jobless Claims for the week ended August 9th were in line with estimates at 224,000 and roughly unchanged from the prior week. Retail Sales data showed car sales and online shopping driving a strong pace of monthly sales at 0.5%, which showed resilient U.S. consumption of goods. Consumer Sentiment dipped for the first time in 4 months as inflation expectations increased to 4.9% in the year-ahead and 3.9% for long-term expectations. The University of Michigan cites higher plans to cut spending relative to the 2022 inflationary period among consumers as muted income expectations and concerns about tariffs drive caution.
A key stock event this week was an agreement reached for Nvidia and AMD to pay 15% of chip sales in China to the U.S. government. Both companies want to tap into significant chip demand in China, but with the U.S. government seeking to limit Chinese access to semiconductors, the deal strikes a balance on both sides. It was also reported this week that the Trump administration is seeking to buy a 15% equity stake in Intel, potentially using funds from the CHIPS Act, which follows calls from the President for Intel CEO Lip-Bu Tan to step down. President Trump continues to push for U.S. dominance in the semiconductor space, stating this week that chip imports could reach 200-300% in some cases.
Looking forward to next week, investors will be watching the outcome of Friday’s meeting between President Trump and Russian President Putin as the U.S. pushes for an end to the war in Ukraine. Fed Chair Jerome Powell will deliver his annual speech at Jackson Hole next Friday, and meeting minutes from the July FOMC conference will also be released. Retailers and homebuilders will report earnings next week, which should provide more insight into underlying fundamentals.
Friday’s Close (Weekly Performance)
S&P 500 6,449.80 (+0.94%)
Nasdaq 21,622.98 (+0.81%)
Dow Jones 44,946.12 (+1.74%)
Thank you Blue Room Senior Analyst JARED FENLEY.
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