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Dow surges as inflation finally cools off

'It didn't get worse': Romans breaks down key inflation data
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What we covered here

  • A key inflation report showed inflation has finally begun to cool off, following a year of runaway prices. Prices were unchanged in July but jumped 8.5% between July 2021 and July 2022.
  • Stocks surged, as investors cheered the long-awaited good inflation news.
  • But inflation remains hot — and it’s not going to just go away with the wave of a wand. The Fed is still expected to raise rates sharply in September to keep prices under control.
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The Nasdaq ends worst bear market in 14 years

The Nasdaq Composite bid adieu to its worst bear market in over a decade today.

The tech-heavy index gained 2.9% on Wednesday and entered bull territory for the first time in 108 days, ending its longest downswing since 2008, when the index fell 54% and the period lasted 218 trading days, according to Dow Jones Market Data.

A bear market ends when an index rises 20% off of recent lows.

The Nasdaq closed on Wednesday at 12,855, up 20.8% from its recent low in November 2020.

The upward move was bolstered by a strong key inflation report which showed a better-than-expected slowdown for prices in the United States.

Major tech stocks rose on the news, Facebook parent company Meta was up by 5.8% and Netflix was 6% higher.

But it’s not all cheery. The Nasdaq is still down 19.9% from its record finish in November 2021.

The S&P 500 also made news on Wednesday, hitting its highest level in three months.

Closing bell: Markets soar after key inflation report shows slowing price hikes

US stocks soared higher on Wednesday after a key inflation index showed that annual inflation is slowing, surprising analysts who expected worse news. 

The consumer price index for July rose 8.5% year-over-year, and was flat compared to June. 

The S&P 500 hit its highest level in three months on the news. 

As stocks settle after the trading day, levels might still change slightly.

Inflation soared quickly, but may take more time to cool off

Customers leave a Walmart store on August 4 in Rohnert Park, California.

The market is cheering the fact that the rate of consumer price increases edged lower in July. But one market expert said investors need to be patient.

“Inflation went up like an elevator but it will go down like an escalator,” Brian Belski, chief investment strategist with BMO Capital Markets, told CNN’s Alison Kosik on “Markets Now” Wednesday.

Belski thinks inflation pressures will take time to ebb and that investors shouldn’t expect prices to fall as quickly as they soared. That said, he is encouraged by the fact that commodity costs are starting to decline and supply chain issues are abating. That should reduce pressure on consumer prices.

And Belski told Kosik he thinks many investors still haven’t factored that into their earnings forecasts. Even though stocks soared in July after a rotten first half of 2022, “People are still too bearish,” Belksi said.

He thinks investors will be surprised by good news later this year — and that’s a key reason why his year-end target for the S&P 500 is 4,800, nearly 15% above current levels.

But the Federal Reserve still may need to keep aggressively raising rates, despite the slowdown in inflation. Dana Peterson, chief economist with The Conference Board, told Kosik that she thinks a three-quarters of a point rate hike is still likely in September.

What’s more, Peterson is also predicting a recession in the next few months. The good news is that she thinks it will be shallow and short-lived. The worst economic numbers will be in the fourth quarter of this year and early 2023, Peterson said. But the downturn will likely only last a few quarters.

Odds of big rate hike fall, housing stocks soar

A 'for sale' sign hangs in front of a home on June 21 in Miami, Florida.

The next Federal Reserve meeting is still six weeks away, and a lot more data on inflation, the job market and consumer spending will come out in the meantime. But for what it’s worth, investors are now of the mindset that the Fed won’t have to raise rates as aggressively as previously thought come September 21.

Before the release of Wednesday morning’s CPI report, fed funds futures trading on the CME were indicating that the market was pricing in a 68% chance of another three-quarter point rate hike in September.

But after the better than expected inflation news was released, odds for that big of a hike have fallen to just 37.5%. In other words, Wall Street is now expecting a 62.5% chance that the Fed will raise rates by just a half-point at its next meeting. That’s up from odds of only 32% for the smaller increase a day ago.

Looking out further, there are growing expectations that the Fed will be even more relaxed with rate hikes beyond September. Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research, said he thinks the Fed may boost rates by only a quarter of a point at its November meeting, and then hit pause after that.

Hopes of a slower pace of Fed tightening helped fuel the market rally Wednesday. But what’s particularly noteworthy is that many of Wall Street’s biggest winners are stocks with ties to the housing market.

Builders DR Horton (DHI), Pulte (PHM), NVR (NVR) and Lennar (LEN) soared. So did home products and furnishings manufacturers such as Whirlpool (WHR), Sherwin-Williams (SHW), carpet maker Mohawk (MHK) and plumbing supplies company Masco (MAS).

Investors appear to be betting that housing sales, which had started to cool as prices and mortgage rates climbed, may not fall off a cliff after all if the Fed becomes less aggressive.

Job market is too hot for a recession, ex-Fed governor says

A "now hiring" sign is displayed in a window in Manhattan on July 28 in New York City.

Despite back-to-back quarters of negative GDP, Randall Kroszner, former governor at the Federal Reserve, said he does not believe the US economy is currently in recession nor that the economists at the National Bureau of Economic Research will declare one.

“It’s highly unlikely they would say the US is in recession now given the strength of the jobs market,” he said, adding that the poor GDP reports were largely driven by inventory drawdowns.

Still, Kroszner warns there is a “heightened risk” of recession over the next year or two because the Fed is raising interest rates and fiscal stimulus is unlikely.

“It is possible for the Fed to have a soft-ish landing,” he said. “But that relies on no big negative shocks and everything going right.”

Way too early to declare victory on inflation, ex-Fed official says

A woman shops for groceries at a store on July 29 in Arlington, Virginia.

Even though inflation cooled off considerably in July, the cost of living remains uncomfortably high and may not get back to normal levels anytime soon.

Randall Kroszner, former governor at the Federal Reserve, told CNN that while inflation has likely peaked, it will take at least a year before inflation returns to the 2% level targeted by the Fed.

“It’s going to take quite some time,” Kroszner said in a phone interview, referring to how long it will take before the Fed’s preferred inflation metric, the personal consumption expenditures (PCE) price index, gets back to 2%.

“Core inflation is still very disturbing for the Fed, dramatically above where the Fed wants it to be,” said Kroszner, now a professor at the University of Chicago Booth School of Business. “It’s too early to give the victory signal because you really have to see core inflation come down. This is one report.”

Oil stocks tank and cruise lines set sail after CPI

Cars parked at Chevron gas station pumps are seen on July 29 in Houston, Texas.

Investors cheered the news that inflation cooled off a bit in July. But not all traders were happy. Oil stocks, which have been big market winners in 2022 as crude prices soared following Russia’s invasion of Ukraine, were notable market losers Wednesday.

Chevron (CVX) was flat, one of just a few notable laggards in the Dow. Merck (MRK) was the only other Dow stock trading lower. (Drug stocks typically hold up better as a defensive hedge against inflation and economic slowdown worries.)

Oil stocks were among the few losers in the S&P 500, too. Schlumberger (SLB), Halliburton (HAL) and Coterra Energy (CTRA) were all in the red Wednesday morning.

Conversely, cruise line stocks led the market on Wednesday. Norwegian (NCLH), Royal Caribbean (RCL) and Carnival (CCL) all rose more than 10%. The three stocks are still down sharply this year, but investors are apparently betting that the worst may be over.

Lower energy costs should boost profits, and consumers may also look to travel more if inflation fears ebb. To that end, casino owner Caesars (CZR) also soared.

Stocks jump as inflation eases

US stocks rose after Wednesday’s inflation report eased investors’ expectations on how quickly the Fed will raise interest rates.

The Dow was up 550 points, or 1.6% mid-morning Wednesday. 

The S&P 500 rose 1.9%. 

The Nasdaq Composite gained 2.5%. 

The headline CPI for July rose 8.5% year-over-year and remained flat from June. Economists had expected prices to increase 8.7% annually and 0.2% between June and July.

Gaming downturn? Roblox results make investors go oof!

Recession worries are swirling in the metaverse, too.

Gaming platform Roblox (RBLX) reported a bigger-than-expected loss for the second quarter, news that sent its stock tumbling 9% in the real world Wednesday morning.

Investors are worried about the fact that bookings, a key measure of future revenue, fell 4% in the quarter.

What’s more, the company’s average bookings per daily active user (ABPDAU) number, which looks at how much money people are spending to buy virtual goods, plunged 21%. In other words, people are keeping a closer watch on how they spend their Robux due to inflation concerns.

Roblox isn’t the only video game company that’s getting hit by growing fears of a weakening economy. Grand Theft Auto maker Take-Two Interactive (TTWO), which recently bought mobile gaming company Zynga, also disappointed Wall Street with its latest results, The stock fell 4% Tuesday on the news.

Take-Two CEO Strauss Zelnick warned on a conference call with analysts that gamers are becoming more cautious.

“I don’t believe the entertainment business is recession proof or even necessarily recession resistant,” Zelnick said, adding that “when you have 50% of big bank economists saying we think we might be in a recession in the next quarter or two, my attitude is the market believes we’re in a recession right now, and as a consumer-facing company, we are seeing some softness.”

The big BUT in today's inflation report

A customer pumps gas at an Exxon gas station on July 29 in Houston, Texas.

Good news is good news, so let’s celebrate for a moment the fact that prices didn’t rise overall last month for the first time since November 2020.

OK, moment over.

Here’s the bad news: Prices didn’t rise for one reason, and one reason only: Falling energy costs. Gas has been down in the United States each day for nearly two straight months. Oil has come down below $90 a barrel after surging above $130 a barrel just a couple months ago.

Falling energy prices are certainly welcome, but we all know how volatile those prices can be. The ongoing war in Ukraine has made prices particularly sensitive to disruptions. And hurricane season’s peak is right around the corner.

Energy prices fell 4.6% in July overall. Gas fell 7.7%, fuel oil tumbled 11%, natural gas prices were down 3.6% and transportation costs were 0.5% lower.

Stripping out energy, prices rose in practically every other category except for apparel (basically flat: -0.1%) and used cars (-0.4%).

Meanwhile, food prices rose another 1.1%. Between July 2021 and July 2022, food prices surged 10.9% – the largest annual increase since the May 1979. 

Electricity costs were 1.6% higher, which is no fun when you’re trying to stay cool in an unending heat wave.

So let’s cheer the fact that prices didn’t rise overall. But July’s report indicates that the Fed may not be having the desired effect on inflation, despite historic rate hikes. It seems high energy prices may have brought themselves down as demand began to evaporate.

Prices didn't rise. Stocks surge

Traders work on the floor of the New York Stock Exchange at the opening bell on August 5 at Wall Street in New York City.

The stock market sure liked Wednesday’s inflation report, which showed price hikes took a break in July.

Dow futures surged 400 points, or 1.3%.

S&P 500 futures were 1.6% higher.

Nasdaq futures rose 2.3%.

The inflation report suggests Americans are finally getting some relief after 19 straight months of rising prices. It may also mean that the Fed can ease up on the gas just a bit instead of continuing its historic pace of rate hikes.

But for the Fed’s next meeting, scheduled for September, the market still anticipates another three-quarter-point rate hike to keep prices from rising, according to CME’s FedWatch Tool.

Finally! Inflation cools off in July

A customer shops in a Kroger grocery store on July 15, 2022 in Houston, Texas. 

Runaway inflation took a breather in July, with consumer prices increasing by 8.5% year over year, a slower pace than the 9.1% increase in June, the Bureau of Labor Statistics reported Wednesday.

On a month-to-month basis, prices held steady, compared to the 1.3% increase in June.

Core inflation, which does not include volatile food and fuel components, was unchanged on a year-over-year basis after last month’s 5.9% jump.

Months’ worth of elevated numbers for the Consumer Price Index, which covers a wide array of goods and services Americans buy, pose a growing challenge for the Federal Reserve, which has committed to reining in soaring prices while trying to avoid plunging the economy into a recession.

Crypto crash. Coinbase posts more than $1 billion loss

So much for the bitcoin bounce? Coinbase (COIN) shares were set to tumble about 5% Wednesday morning after the crypto brokerage firm reported a whopping $1.1 billion loss, worse than expected.

Revenue plunged more than 60% from a year ago and more than 30% from the first quarter of 2022. The “crypto winter” that Coinbase CEO Brian Armstrong talked about earlier this year is clearly continuing.

“The current downturn came fast and furious, and we are seeing customer behavior mirror that of past down markets,” the company said late Tuesday in its earnings letter to shareholders.

Vin Diesel may not be able to save Coinbase. But investors are hoping BlackRock (BLK) might.

Shares of Coinbase, despite a more than 10% drop Tuesday before second quarter results were released, are up more than 35% in the past week. That rally is largely due to news that Coinbase is partnering with BlackRock to let the iShares owner’s institutional clients trade bitcoin on Coinbase Prime.

Coinbase’s stock is still down more than 65% this year though.

Inflation still bites, but we'll take whatever relief we can get

Most economists expect to see that inflation eased last month, to 8.7% from 9.1% in June. Again, that’s not great — it’s still historically high, but we’re trending in the right direction.

Cooling inflation is good news, even if some of the factors behind it are… not so great.

Ultimately, people are pulling back spending because they’re struggling to make ends meet after a year of relentless price increases that have far outpaced wage growth. Recession fears are real, and even if inflation has peaked, it’s not likely to go back down to pre-pandemic levels quickly.

Stock futures rise ahead of key inflation report

The New York Stock Exchange on Wednesday, June 29, in New York.

US stock futures rose slightly ahead of another key inflation report that is expected to show price hikes are finally beginning to cool off.

Dow futures were up 50 points, or 0.2%.

S&P 500 futures rose 0.2%.

Nasdaq futures were 0.4% higher.

US oil fell 0.7% to $90 a barrel. Average US gas prices fell to $4.01 a gallon.

Evidence that inflation may be taking a break

A person goes to the pump at a gas station on July 29 in Arlington, Virginia.

We finally have some evidence that inflation might be taking a breather:

  • Gas prices in America have been falling for more than 50 consecutive days. The average cost of a gallon of gas, at a little over four bucks, is down almost a dollar since the June peak.
  • Online retail prices fell 1% year-over-year in July, snapping nearly two years of persistent increases. The shift is even more pronounced on a month-over-month basis, in which online prices dropped by 2% in July.
  • Walmart, Target and Best Buy are slashing prices to try to clear out a glut of inventory — that’s a business problem and a consumer perk we haven’t seen since before the pandemic. 
  • In terms of inflation psychology, we’re broadly more optimistic these days. The Survey of Consumer Expectations this week showed that expectations of higher prices are easing.
  • The strong US dollar, while problematic for the rest of the world, is a nice little perk for Americans traveling abroad right now.

Is inflation finally starting to cool off?

A Target store in New York, US, on July 28.

Inflation is on the minds of consumers, investors, politicians and, of course, the Federal Reserve. Will the pace of price increases finally start to cool a bit?

Economists surveyed by Reuters are forecasting that consumer prices rose 8.7% over the past 12 months. That is still an historically high level but it would be a slowdown from the 9.1% increase through June.

Investors recognize that inflation isn’t going to magically disappear overnight. But any signs of pricing pressures beginning to abate (even modestly) should be cheered.

Consumers would be thrilled, too. Food giant Tyson has noticed a big impact from inflation: shoppers are ditching more expensive beef for cheaper chicken. Americans have been routinely faced with sticker shock at the supermarket in the past year.

But there is some good news for consumers who prefer clicks to bricks. After a more than two-year stretch of monthly increases in online retail prices, Adobe recently reported that e-commerce prices fell 1% year-over-year in July.

Prices for electronics and toys sold online dropped by the largest amount. Apparel was cheaper to buy online, too. But grocery prices rose in July. And the prices of pet products online surged nearly 13%, hitting a record in the process.