A Market Rebound That Puts Economic Critics on Notice
By John Persinos
Over the past week, markets have bounced back from the previous sharp downturn, with the S&P 500 surging over 6.5% since its August 5 lows, and the tech-centric NADSDAQ climbing more than 8%.
Two main factors are driving this renewed positive sentiment. First, inflation continues to cool, with both the consumer price index (CPI) and producer price index (PPI) for July coming in below expectations.
Second, economic indicators remain strong, with retail sales and jobless claims exceeding forecasts. These trends suggest that while the U.S. economy may be slowing, it is not on the brink of a significant downturn or recession.
During this heated election season, political demagogues warning of a market crash and economic depression may want to revise their campaign playbook. It's a losing campaign strategy.
All signs point to an interest rate cut by the Federal Reserve at its forthcoming September 17-18 Federal Open Market Committee (FOMC) meeting. The Jackson Hole Symposium (August 22-24) also will be closely monitored. Fed Chair Jerome Powell and his team will probably use this event to signal a rate reduction.
After a series of concerning inflation reports in the first quarter of the year, inflation metrics have started to decline, surprising on the downside. Last week's data continued this trend, with both PPI and CPI inflation coming in below expectations for July.
The headline CPI is now at its lowest point this year, while headline PPI inflation was recorded at 2.2% annually, slightly below the forecast of 2.3%. Similarly, headline CPI inflation came in at 2.9%, just under the expected 3.0%.
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