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Weekly Market Commentary
July 15, 2024
The Markets
Will deflation continue?
In May, Pew Research asked Americans about the biggest problems facing our nation. The top three answers were:
- Inflation;
- The ability of Democrats and Republicans to work together; and
- The affordability of health care.
Last week, there was some good news about the first issue. Inflation became deflation as the Consumer Price Index (CPI) fell in June after remaining unchanged in May. Headline inflation was ‑0.1 percent month over month.
Megan Leonhardt of Barron’s reported on the CPI’s findings: “The details under the hood, so to speak, also largely provided good news for consumers and Fed officials. Goods deflation continued — driven by falling new and used vehicle prices—while services costs also trended down. And housing costs, a persistently stubborn sector when it comes to progress in taming inflation, increased just 0.2% on the month — a slowdown from the consistent monthly readings of 0.4%.”
Cooling inflation may lead the Federal Reserve (Fed) to begin lowering the federal funds rate – and that would make borrowing less expensive. Optimism about lower rates led to a bond market rally, and a realignment in the stock market. Rita Nazareth of Bloomberg explained:
“Wall Street traders betting the Federal Reserve will be able to cut rates soon sent bond yields tumbling — while driving a big rotation out of the tech megacaps that have powered the bull market in stocks. Further signs that inflation is slowing down fueled speculation the Fed will be able to move as early as September. Optimism over lower rates sparked a shift into riskier corners of the market — as money exited the long-favored safety trade of big tech.”
Last week, major U.S. stock market indices moved higher with the Dow Jones Industrial Average hitting its first record high for 2024, reported Jacob Sonenshine. The yield on the benchmark 10-year U.S. Treasury note moved lower last week.
Over the weekend, after this commentary was written, there was an attempt to assassinate former President Donald Trump. We condemn this senseless act. We will stay alert to how this affects financial markets.
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