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Inflation Report and Bank Downgrades Headline Relatively Light Economic Data Week
Major equity indexes were mixed last week as investors assessed the most recent inflation reading and bank downgrades. Global equities (represented by the MSCI All Country World Index) were down -0.58%, and domestic stocks (represented by the S&P 500 Index) were down -0.27%.
Consumer Price Index
The Consumer Price Index released last Thursday showed a headline annual rate of 3.2% in July, slightly below consensus estimates. Core inflation (excludes energy and food prices) rose at an annual pace of 4.7%, down from 4.8% in June. Shelter costs continue to be the largest contributor to the index, but it is rising at its lowest monthly pace of 0.4%. While still off from the Fed’s 2% inflation goal, markets still expect the Fed to keep rates steady for the remainder of the year. According to the CME FedWatch Tool, markets are pricing in a 60% probability of the target Fed Funds rate remaining still and only a 32% probability of an additional 0.25% rate increase through their December FOMC meeting.
Downgraded Ratings
Credit rating agency Moody’s downgraded 10 small and midsized US banks last week while also putting several larger banks, such as BNY Mellon, on review. The downgrades occur during a time of challenge for the banking industry as higher lending rates and heightened asset-liability management risks pose increased pressures on profitability.
US Index of Consumer Sentiment
A preliminary reading of the University of Michigan’s US Index of Consumer Sentiment showed a slight drop in August to 71.2 from 71.6 in July, the highest reading of the year. The index hit a decade-low in June 2022 with a reading of 50.0, and we entered 2023 with a reading of 64.9 in January.
Retail Sales
This week retail sales will be reported for July. June’s sales rose 0.2% month-over-month, shy of expectations and at a slower rate than the two months prior. Retail sales have continued to grow despite potential recessionary economic conditions.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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