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Markets Race Ahead Before CPI Data Thursday

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Wednesday, July 10th, 2024

Markets raced surprisingly higher today. After a second day of testimony from Fed Chair Jerome Powell on Capitol Hill — the first day of which amounted to a mostly flat trading session — we saw all major indices running hotter. Part of this was likely due to Powell’s clear and concise presentation, and some of it feels like it’s getting a jump on what might be favorable results from tomorrow morning’s Consumer Price Index (CPI) report.

It was the single-best trading day on the Dow since May. The blue-chip index climbed +429 points, or +1.09%, while the S&P 500 set yet another all-time closing high, +1.02% to 5633. Rather unsurprisingly, the Nasdaq led the way again, +218 points or +1.18% to a new record 18,647 at the close. The small-cap Russell 2000 finished in the green +1.06% for the day. Following Powell’s testimony, trading began to level off before accelerating higher into the closing bell.

Powell addressed Republicans in the House Finance Committee this morning. When asked pointedly whether a possible September rate cut might be seen in political circles as meddling with the November 5 General Election day, Powell said the Fed makes data-driven decisions, “not in consideration of other factors, and that would include political factors.” Currently, there is a 70% chance the Fed reduces its funds rate of 5.25-5.50% for the first time in more than a year come September. Powell just said without hesitation that the election will have nothing to do with the decision.

He also threw cold water on the “meddling” aspect. In fact, based on strong market gains over the past couple weeks or so, a non-cut in September would likely have a chilling effect on the market at least as much as a rate cut might heat it up. The fact of the matter is, at least one rate cut is already being priced into the market. If it is not forthcoming, then eventually it would have to then be priced out of the market.

Wholesale Inventories for May came out this morning, as well. As expected — and as the preliminary print showed earlier — Wholesale Inventories grew +0.6% for the month, above the slightly adjusted +0.2%, and the strongest single-month read since November of 2022. It also marks the fourth month in the past six of 2024 so far in positive territory. Prior to that, four months were lower and two were break-even. And even though Inventory growth is the least desirable economic growth, this points toward corrections in supply-chain metrics somewhat accounted for.

Tomorrow morning’s CPI numbers are not all that await us. Because it’s Thursday, we’ll also see Weekly Jobless Claims, which are expected to tick down a bit from last week’s 238K. Yet we are fairly clearly in a new labor force environment that where we were, say, a year ago. The Inflation Rate (headline CPI inflation, year over year) is expected to tick down 20 bps to +3.1% for June. This afternoon’s market bid suggest some positive sentiment is flowing toward favorable readings for both.

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