Better-than-expected updates last week on consumer and wholesale price inflation buoyed investor sentiment, driving stocks higher and lower bond yields.
The Dow Jones Industrial Average rose 2.29%, while the Standard & Poor’s 500 increased 2.42%. The Nasdaq Composite index advanced 3.32% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 4.67%.1,2,3
Inflation Sparks Stocks
Two consecutive positive inflation reports encouraged investors, leading to a surge in stock prices to their peak since April 2022. The lower-than-expected inflation figures for consumer prices and producer prices have sparked optimism among investors. This suggests that inflation could potentially decrease even more without causing an economic downturn and may also lead the Federal Reserve to reconsider their aggressive stance on increasing interest rates. 4
After four straight days of increases, investor attention turned to the kick-off of a new earnings season on Friday. Despite some positive earnings surprises from several big banks and a major healthcare provider, stocks closed out a good week with a slight decline.
Inflation continued its downward trend last month, falling at its slowest pace in over two years. Consumer prices rose 0.2% in June and 3.0% from a year ago. Both were below economists’ consensus forecast. Core inflation (excludes food and energy), which has been more stubborn, fell to 4.8% year-over-year–its lowest level since October 2021.5
What’s next for the economy and the stock market? We cannot predict the fluctuations of the stock market, but we can tell you what’s next for us is to remain focused on your investment strategy, which reflects your goals, time horizon, and risk tolerance.
1-5. The Wall Street Journal, July 14, 2023
Category: Market Matters