Profit Boom Outshines Inflation Worries
By John Persinos
When determining stock prices, corporate profits trump most other factors. (Remember the good old days, when "trump" was just a word without political connotations?)
It's not just market sentiment or macroeconomic headlines that drive valuations—it's the hard numbers. Profits fuel the engine of stock performance, providing the tangible results that investors seek.
Below, I examine the good news about corporate bottom lines during second quarter 2024 earnings season.
The PPI shows further cooling…
Inflation is a focal point for markets this week, with the release of the producer price index (PPI) and consumer price index (CPI) data.
The PPI was anticipated to show a year-over-year increase of 2.3%, slightly lower than the previous month's 2.6% rise. The actual numbers came in better today.
The U.S. Bureau of Labor Statistics reported Tuesday that the PPI increased 0.1% in July, less than 0.2% forecast. Core PPI excluding food and energy was flat. On a year-over-year basis, headline PPI rose 2.2%, a sharp drop from the 2.7% reading in June. The PPI measures wholesale inflation and is considered a leading indicator.
The CPI, scheduled for release on Wednesday, is expected to hold steady at a 3% year-over-year increase, mirroring last month's figures. Core CPI is projected to tick up by 3.2%, down slightly from the previous 3.3% reading.
While inflationary pressures were more pronounced earlier this year, recent data suggests some moderation, potentially paving the way for the Federal Reserve to ease interest rates as early as September. Wall Street is betting on a 100-basis point reduction by the end of the year.
Inflation has been cooling, but unexpected spikes in the monthly numbers are usually enough to send stocks tumbling. However, these unpleasant surprises amount to post-COVID "white noise" that belie the underlying trend of falling inflation.
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