Inflation Eases
Inflation eased slightly last month, as shown by the personal consumption expenditures price index, which increased by 0.1% monthly and 2.5% annually. This was in line with analysts' expectations. Core inflation, excluding food and energy, also met predictions with a 0.2% monthly and 2.6% annual increase, leading to positive stock market reactions and lower Treasury yields. This easing inflation supports the likelihood of a September interest rate cut by the Federal Reserve, despite the upcoming policy meeting being expected to maintain current rates. While personal income growth was below estimates, spending remained strong, reducing the savings rate to its lowest since November 2022.
Surprise U.S. Economy Growth
The U.S. economy grew at an annualized rate of 2.8% in the second quarter, surpassing expectations. The strong growth was fueled by strong consumer spending, government expenditure, and inventory investments. Consumer activity, indicated by personal consumption expenditures, rose by 2.3%, while government spending surged, particularly in defense. Despite a declining personal savings rate and rising credit card delinquencies, retail sales remained robust, and the Federal Reserve is expected to keep interest rates steady with potential cuts anticipated later in the year.
What is a “Buffalo Market”?
After recently reaching new highs, the S&P 500 experienced its worst trading session last Wednesday since 2022. The broader markets began to recover after the technology stock sell-off. Bank of America describes the current market as a "buffalo market," which may wander but ultimately relies on fundamentals like earnings and investment cycles to turn bullish again. Increased volatility is expected around the election, yet U.S. equities are predicted to end the year higher, with earnings being a key factor. Experts caution against holding too much cash despite high interest rates, as staying out of the market could hinder long-term financial goals.
