Don’t Get Too Excited About This Latest Inflation Report
Stocks had a strong performance on Tuesday after the latest US wholesale inflation report was released. But investors should be cautious, according to Evercore ISI. The Wall Street research firm warned on Tuesday that monthly producer price indexes have little correlation with the more widely followed consumer price index — which could have a bigger impact on stocks. The PPI for July showed a 0.1% increase, less than economists expected. In other words, just because the PPI rose less than expected doesn’t mean investors should expect a soft CPI report on Wednesday. Stephen Stanley at Santander US agrees. “Financial markets seem to overreact to PPI every month,” said Stanley, the bank’s chief economist. [It] has limited significance for CPI, [which] much more important.” That said, if the July CPI data released Wednesday reinforces expectations for a Federal Reserve rate cut next month, it could potentially fuel another rally in stocks. The S&P 500 closed up nearly 2% on Tuesday, while the Nasdaq Composite rose 2.4%. The Dow Jones Industrial Average rose more than 408 points, or 1.04%. The major averages are now well above their lows on Aug. 5, when the Dow and S&P 500 suffered their biggest one-day drops since 2022. . SPX 5D Mountain 5-Day Chart “When you think about the pullback, you really just have the normal seasonality of August combined with a ‘Black Swan’ event,” David Russell, chief global market strategist at TradeStation, said Tuesday, referring to the report Weak nonfarm payrolls in July contributed to the global market sell-off early last week. “The data hasn’t been bad enough to translate into earnings. … We’re still looking at double-digit earnings growth.”
