THE WEEK ON WALL STREET

An improving inflation outlook buoyed investors’ spirits last week, helping lift stocks to solid gains.

The Dow Jones Industrial Average advanced 2.92%, while the Standard & Poor’s 500 rose 3.26%. The Nasdaq Composite index added 3.08% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 2.39%.^1,2,3

LOWER INFLATION SPURS BUYING 

Stock prices surged mid-week when the U.S. Bureau of Labor Statistics released a better-than-expected Consumer Price Index (CPI) number, with buying momentum building throughout the trading session. 

Gains were significant across the board, with technology and small-cap companies leading the market higher. The mid-week rally sent the S&P 500 to its highest level since May and the Nasdaq to its highest level since April. Bond yields fell on expectations that the Fed's pressure to hike rates further might ease. After pausing on Thursday, stocks again ripped higher on Friday, aided, in part, by a report indicating improving consumer sentiment.⁴

INFLATION COOLS   

The Consumer Price Index in July was softer than expected, with prices unchanged from the previous month thanks to a 4.6% decline in energy prices and a 7.7% drop in gasoline.⁴

Despite the encouraging results, the CPI report still evidenced upward price pressure. The year-over-year inflation rate remained at 8.5%, while the core CPI (excluding food and energy) came in at 5.9%. Among the index components seeing substantial price increases were food (+10.9% from 12 months ago) and shelter (+5.7%). Producer prices fell 0.5% in July, suggesting that future consumer price increases may continue to moderate.^5,6