Flanked by monthly inflation data and international peace talks, the equity markets managed a gain for the week. The market bounced back last week on generally upbeat earnings reports across several sectors. For the week, the S&P 500 Index was +1.0%, the Dow Jones Industrials +1.8%, and the NASDAQ +0.4%. The Health Care, Consumer Discretionary, and Communication Services sectors led the S&P 500 Index for the week, while the Consumer Staples, Utilities, and Industrial sectors lagged. The 10-year U.S. Treasury note yield increased to 4.275% at Friday’s close versus 4.214% the previous week.
Retail inflation was inline with expectations as the July Consumer Price Index (CPI) was +0.2% month-over-month and +2.7% year-over-year. Core CPI, which excludes food and energy prices, was +0.3% month-over-month and +3.1% year-over-year. Wholesale inflation came in hotter than expectations with the July Producer Price Index (PPI) +0.9% month-over-month and +3.3% year-over-year. Core PPI, which excludes food, energy, and trade prices, was +0.6% month-over-month and +2.8% year-over-year.
Peace efforts in the Russia-Ukraine war are back center stage following President Trump’s meeting with the Russian president on Friday and today’s scheduled meeting with the Ukrainian president.
The Federal Reserve Economic Policy Symposium will be held this week in Jackson Hole, Wyoming. Federal Reserve Chair Jerome Powell is scheduled to speak on Friday. With the Federal Reserve on the doorstep of a potential rate cut in September, Powell’s speech could provide some insight to the eventual shift in monetary policy. Fed funds futures are projecting two 0.25% rate cuts for 2025 starting at the September meeting. One 0.25% cut is projected for the first quarter of 2026.
The major retailers headline earnings reports this week. For the week, fourteen companies in the S&P 500 Index are scheduled to report earnings. With these few reports remaining, S&P 500 Index earnings growth expectations for the quarter are 11.8%, up from 4.8% at the start of the reporting period, and revenue growth is expected at 6.3%, up from 4.2%. Full-year 2025 earnings are expected to grow by 10.3% with revenue growth of 5.8%.
In our Dissecting Headlines section, we look at categories driving retail inflation.
Financial Market Update
Dissecting Headlines: Where Inflation Is and Is Not
Retail inflation, as measured by the Consumer Price Index, has been above the Federal Reserve’s 2% annual target since the economy emerged from the COVID-19 pandemic. Inflation has trended down from its peak of 9.1% in June of 2022 with a mix of inflationary categories and deflationary categories.
The current year-over-year price changes are higher in energy services with natural gas service +13.8% and electricity +5.5%. Other services to include waste collection +6.3% and medical services +4.3 are also seeing higher prices. Shelter is +3.7% and since shelter accounts for 35.4% of the CPI it remains a major driver of overall inflation. Food at home is only 2.2% higher, but there are pockets of inflation with beef +11.3% and eggs +16.4%, though eggs have declined more recently, down 3.4% last month. Coffee prices are also higher year-over-year at +14.5%.
Offsetting some of the impact in higher prices, apparel is down 0.2% year-over-year and, while prices can be volatile, gasoline is down 9.5%. Within food, fruits and vegetables are only 0.2% higher year-over-year and frozen vegetables, in particular, are 2.2% lower.
Moving inflation back toward 2% is essential for maintaining the spending power of consumers.