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Weekly Market Update for August 12, 2022

by Jared Plotz

Markets advanced for a fourth consecutive week as inflation woes tempered. The S&P 500 rose +3.26% while the NASDAQ was up +3.08%. Some investors argue that a peak in inflation will lead to a pivot by the Fed toward less aggressive tightening, thereby opening the door to a return to equity market highs. Others argue the recent move is a “bear market bounce”, and that sticky (above-normal) inflation will continue to pressure the economy. Longer-term interest rates were largely unchanged with the 10-Yr Treasury at 2.85%, though Preferred securities did rise slightly.

Stocks began the week down. On Wednesday morning, July’s Consumer Price Index inflation reading was softer than expected. The headline number rolled lower to +8.5% y/y from June’s 9.1% pace, helped by lower gas prices. Core inflation (ex-food & energy) is running at +5.0%. On Thursday, the Producer Price Index reading sang the same tune and, together with the CPI, drove a mid-week rally. While company conference calls frequently noted inflationary pressures, a New York Fed survey showed a substantial decline in consumers’ inflation expectations, and the consumer sentiment index has now inflected upwards.

One of our long-time core equity holdings, Axon Enterprise (maker of tasers and police body cameras) reported on Tuesday evening. Revenues grew over 30% versus the comparable quarter last year, with noted traction in software and cameras. New orders grew over 40% and profits topped expectations. The company’s stock rose 13% on the news.

We will hear July’s retail sales and housing market data next week. With many retailers reeling from excess inventories requiring price discounting, more companies have begun cutting jobs or freezing hiring to combat margin pressure. We also have a couple of quarterly earnings laggards from the home improvement space, with Home Depot and Lowe’s set to report mid-week. Later in August will bring the Fed’s Jackson Hole Economic Symposium.

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