The stock market is going to be very volatile tomorrow after the Consumer Price Index (CPI) and Core CPI reports are released. But if you’re like me, you’re not too worried, as we’ll go over the Jobs report and Apple. But the big question is, what will the CPI report mean for the market? Here are the main factors to keep an eye on tomorrow. Read on to find out more.
Consumer price index
Today, after the release of July’s CPI, investors are looking for clues about how the Federal Reserve will react to the consumer prices. While the overall CPI rose 8.5%, the rate was lower than economists had anticipated, as energy and gasoline prices fell. Disney is set to release its quarterly results after the bell. Several analysts say this is a positive sign for the stock market and could even spark a rally.
The Consumer Price Index is an estimate of changes in the prices of many items, including food, clothing, and services. It incorporates seasonal adjustment and is widely used by financial markets and the Federal Reserve to determine inflation and calibrate monetary policy. Businesses use the Consumer Price Index to make informed economic decisions. It is also a major factor in pay negotiations, since it measures the changing purchasing power of consumers. Listed below are some examples of what to expect from this report.
The overall CPI includes the costs of shelter. Rent and rental prices are based on a survey of the rental prices of about 43,000 housing units. The owners’ equivalent model represents the rent equivalent of owner-occupied dwellings and reflects the share of housing costs in overall consumer spending. The Bureau of Labor Statistics publishes two CPI indexes each month. The shelter category accounts for almost a third of overall CPI.
A sole consumer can use the CPI to compare prices of goods and services with those of the reference period. For example, if a sole consumer purchases a house in 2006, they can compute the consumer price index by comparing the interest rate paid in 2009 to that of the same type of debt in 2010. In this way, the changes are like-for-like and are a fair reflection of the cost of living in that particular country.
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Core CPI
This month, economists will focus their attention on the consumer price index (CPI), which measures inflation excluding energy and food. The core CPI for June is expected to rise by 0.3% year over year, but that’s below the 1.7% increase for the month of May. On the other hand, the core CPI for May rose by 0.6% a month, which is above the average gain of 0.2% in the two years before the stagflation pandemic hit the market.
The U.S. stock market soared Wednesday after the CPI report showed that July inflation was lower than expected. Traders cheered this news because it meant that inflation will be much lower than the previous month. On Wednesday, the Dow and S&P 500 closed higher, and the Nasdaq Composite gained more than 2%. Investors were encouraged by the report, which showed that prices in July had moderated. Additionally, the CPI was lower than the estimate for early 2021. This was a good sign because it suggests that the Federal Reserve may be slowing down its interest rate hikes.
Despite the negative news on the CPI report, traders are still looking forward to September’s consumer price index. While the CPI report does show a slowdown in inflation, Cramer expects the Fed to hike rates again. This time, the rate will be increased by 50 basis points, which is below Powell’s original target of 75 basis points. The CPI report also gave investors the green light to buy tech shares, which have been punished in recent months by higher interest rates. Tesla was up nearly 4% in premarket trading, while Amazon and Meta gained 3%. Chip stocks were also rebounding from negative earnings warnings.
The CPI is widely-used inflation measure. It is the basis for cost-of-living adjustments to federal benefit payments. The Bureau of Labor Statistics samples 94,000 prices monthly and weights each index based on the share of recent consumer spending. The CPI adjusts for substitution and changes in product quality. The CPI numbers are published either with or without seasonal adjustments. It is widely known that the CPI does not reflect the cost of healthcare.
Jobs report
The next week will bring earnings reports from tech companies, travel and leisure firms, and other cyclical companies. This week’s key economic reports will be followed by the Consumer Price Index report for July, which will determine the direction of interest rate policy. This week’s reports will have the biggest impact on market sentiment, as investors continue to weigh the economic outlook. But before we dive into the week’s key economic reports, let’s look at why they’re important.
The key inflation report that was released on Wednesday showed that prices remained relatively flat in July, although they had risen by 8.5% between July and June. On this good news, stocks rose. But it’s important to remember that inflation won’t disappear soon, as the Fed is expected to hike interest rates again in September. The key economic reports this week will help gauge whether investors are betting on a slowdown in the pace of inflation.
The July jobs report showed that the labor market is tighter than many economists expected. Despite this, the Dow finished near a flat line. However, the S&P 500 gained a few points on the news. Earlier in the week, there was a mixed set of economic reports for July. However, the Nasdaq Composite, the Russell 2000, and the S&P 500 Index posted positive results. Meanwhile, the Dow finished with negative results. Despite the negative economic reports, the equity markets continued to get support from corporate earnings reports.
Following the CPI report, investors cheered the report. The Dow futures gained more than 400 points and the Nasdaq advanced 0.4%. Despite the mixed news, the Nasdaq Composite could erase Tuesday’s losses. A deceleration in the Consumer Price Index is good news for the Fed. However, the deceleration in the inflation rate could delay the pace of monetary tightening. Tesla, Netflix, and Salesforce all rose sharply on Wednesday.
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Apple
Apple is facing a tough period with its stock prices, as the company continues to release new products and face supply constraints. While it surpassed sales targets in the last quarter, it warned about a potential revenue impact of $4 to eight billion. The company’s supply constraints and the strong dollar also contributed to the decline in the iPad, but CEO Tim Cook argued that the company would continue investing in new products and services.
Despite producing amazing products, Apple has been dead money since November. Its stock is valued at nearly 24 times earnings, and it is unlikely to grow much more than a low single digit percentage. Apple stock has limited upside and may drop to $100 or lower if a recession takes hold. The company’s growth is not the only problem, but supply constraints are the biggest obstacle. With so many concerns on the horizon, Apple stock has fallen below its historical average.
The stock was hampered by investor concerns that the Fed may raise interest rates too soon. This deceleration in inflation was a relief for the Fed, which is scheduled to hike rates again in September. Despite the recent dip, other major technology stocks like Netflix, Tesla, and Salesforce were outpacing the broader market. In addition to Apple, Amazon, Google, and Netflix rose as well. It was an excellent day to buy Apple stock if the market is headed in that direction.
While the latest CPI report shows that the inflation rate remains relatively low, the market is also anticipating a softer number. The White House warned against a high-level CPI, saying that the number is too outdated to be helpful. Consequently, the market will likely react positively to the news, leading the growth-oriented sectors to rally. In addition to the CPI, the Dow Jones Industrial Average and Treasury yields both moved on days of the CPI release. The S&P 500 index closed down nearly 2% on May 11 and June 10.
Nasdaq
The Nasdaq and S&P 500 are poised to move higher after Wednesday’s Consumer Price Index reported that prices increased by just 0.1% in July and were flat compared to June. The report is the latest of several that will set the tone for the Federal Reserve’s interest rate policy. A weak inflation report last week has spooked investors, but this latest release should ease fears. However, the Fed is expected to raise interest rates in September, so this report should keep the market moving in a positive direction.
On Wednesday, the Nasdaq gained 2.9%, putting it back into bull territory for the first time since 108 days. This is the longest downswing since November 2008, when the index fell 54%. The Nasdaq closed at 12,855 points on Wednesday, 20.8% above its November 2020 low, ending a bear market that had lasted more than a year. As the inflation report was released, the Nasdaq was able to rally from its recent low, ending a long bear market.
The market was mixed on Thursday following the release of the U.S. CPI report. While the S&P 500 gained 2.1%, the Dow slipped 0.1%. The Nasdaq Composite Index finished up slightly while the Dow declined 0.01%. The news boosted the markets after Wednesday’s CPI report showed that prices were easing last month and falling below the early 2021 level. Investors saw this as a positive indicator and signaled that the Federal Reserve will scale back on its interest rate hikes.
The CPI report will be a key driver in the short term. On Friday, the U.S. jobs report came in hotter than expected, but the consumer price index, or core CPI, will provide a better picture of the Fed’s tightening monetary policy. If it remains low, the Nasdaq may end the day lower. However, the U.S. dollar is likely to rally on Wednesday.
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