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On this final trading day of the month of July ’22 — one day after we find ourselves in a “technical recession,” with two successive quarters of negative GDP growth — we are modestly mixed following new inflation numbers out this morning: the Dow is -10 points, the S&P 500 +10 and the Nasdaq +80 points at this hour. Prior to the PCE Inflation Index for June, we were +15, +15 and +85 points, respectively.
It’s easily been the best trading month of the year, coming off what still looks like the bottom back in mid-June. The Dow is +4.8% in July, the S&P is +6.6%, the Nasdaq +8.8% and the small-cap Russell 2000 is the highest of them all, +8.9%. Of these, only the Nasdaq remains in “bear market territory,” -23% year to date.
This past month has also seen some heavy lifting in terms of clearing the haze on economic realities of the year so far: in addition to the Fed raising interest rates another 75 basis points (bps) — which has brought the Fed funds rate to levels not seen since 2019 — we have seen an inverted yield curve between 2-year and 10-year bond notes, which is a red flag signal of a coming recession (even though we’re already technically in a recession), and better-than-expected resilience from Q2 earnings reports to this stage.
This morning, we see more hot inflation prints from June: the Personal Consumption Expenditure (PCE) Inflation Index came in at +6.8% year over year, a half-point higher than the +6.3% expected and only 10 bps off the all-time high set in 1982. Stripping out volatile food and energy costs brings us the “core” level, which came in at +4.8% — a tick higher than the original print for the prior month.
Month over month, +0.6% was in-line with expectations, with the Fed’s preferred “Deflator” number reaching +1.0% — hotter than expected, 10 bps higher than May and a new high for the cycle. In order to find a hotter number, we must return to the final months of the Carter administration, when we saw a +1.2% print in 1980.
Consumer Spending last month strengthened, however, to +1.1% from an upwardly revised +0.3% the previous month. Meanwhile, Personal Income remained steady month over month at +0.6%. Thus, the American consumer appears to be dipping into those historically high savings levels accrued throughout the pandemic.
Also, the Employment Cost Index for June demonstrates a steady increase from already high levels: +1.3% was this morning’s headline figure, up from the +1.1% expected. This follows May’s +1.4%, which happens to be the all-time high since this survey began in the mid-1990s. This is the wage growth metric we’ve seen in recent months of non-farm payroll data; new monthly jobs reports for July are out next week.
Perhaps unsurprisingly, better-than-expected Q2 earnings results are out this morning for Big Oil supermajors ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) , which outperformed on their bottom lines by +9% and +16%, respectively. Exxon brought in a whopping $115.68 billion in the quarter, surpassing estimates by +2% and well above the $67.74 billion reported in the year-ago quarter. Chevron’s $68.76 billion in Q2 sales marks an impressive +23% beat over expectations and miles ahead of the year-ago $37.6 billion.
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PCE Inflation Hits 40-Year High in June
On this final trading day of the month of July ’22 — one day after we find ourselves in a “technical recession,” with two successive quarters of negative GDP growth — we are modestly mixed following new inflation numbers out this morning: the Dow is -10 points, the S&P 500 +10 and the Nasdaq +80 points at this hour. Prior to the PCE Inflation Index for June, we were +15, +15 and +85 points, respectively.
It’s easily been the best trading month of the year, coming off what still looks like the bottom back in mid-June. The Dow is +4.8% in July, the S&P is +6.6%, the Nasdaq +8.8% and the small-cap Russell 2000 is the highest of them all, +8.9%. Of these, only the Nasdaq remains in “bear market territory,” -23% year to date.
This past month has also seen some heavy lifting in terms of clearing the haze on economic realities of the year so far: in addition to the Fed raising interest rates another 75 basis points (bps) — which has brought the Fed funds rate to levels not seen since 2019 — we have seen an inverted yield curve between 2-year and 10-year bond notes, which is a red flag signal of a coming recession (even though we’re already technically in a recession), and better-than-expected resilience from Q2 earnings reports to this stage.
This morning, we see more hot inflation prints from June: the Personal Consumption Expenditure (PCE) Inflation Index came in at +6.8% year over year, a half-point higher than the +6.3% expected and only 10 bps off the all-time high set in 1982. Stripping out volatile food and energy costs brings us the “core” level, which came in at +4.8% — a tick higher than the original print for the prior month.
Month over month, +0.6% was in-line with expectations, with the Fed’s preferred “Deflator” number reaching +1.0% — hotter than expected, 10 bps higher than May and a new high for the cycle. In order to find a hotter number, we must return to the final months of the Carter administration, when we saw a +1.2% print in 1980.
Consumer Spending last month strengthened, however, to +1.1% from an upwardly revised +0.3% the previous month. Meanwhile, Personal Income remained steady month over month at +0.6%. Thus, the American consumer appears to be dipping into those historically high savings levels accrued throughout the pandemic.
Also, the Employment Cost Index for June demonstrates a steady increase from already high levels: +1.3% was this morning’s headline figure, up from the +1.1% expected. This follows May’s +1.4%, which happens to be the all-time high since this survey began in the mid-1990s. This is the wage growth metric we’ve seen in recent months of non-farm payroll data; new monthly jobs reports for July are out next week.
Perhaps unsurprisingly, better-than-expected Q2 earnings results are out this morning for Big Oil supermajors ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) , which outperformed on their bottom lines by +9% and +16%, respectively. Exxon brought in a whopping $115.68 billion in the quarter, surpassing estimates by +2% and well above the $67.74 billion reported in the year-ago quarter. Chevron’s $68.76 billion in Q2 sales marks an impressive +23% beat over expectations and miles ahead of the year-ago $37.6 billion.