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Market Recap – August 14, 2023

Keel Point

August 14, 2023

The big news last week was the July CPI report showing core CPI inflation of only 0.16% (month over month) for the second month in a row, and a three-month annualized rate of 3.1% — a near two-year low.

  • The three-month annualized core CPI inflation rate quite likely will fall further to near 2% for the August report, if used-vehicle prices continue to fall as they have in the first ten days of August.
  • Inflation in rents and owners’ equivalent rents (the “shelter” component of CPI) is coming down slowly as newly signed rental agreements are showing lower price increases and, in some cases, declining rental rates. Excluding shelter, core CPI inflation was only 2.5% in July. 
  • The cooling labor market we reported last week, and continuing easing of supply shortages, are providing increasing disinflationary pressures, both good news for the Fed pausing rate increases and shifting to rate cutting in the first half of 2024.

Lower consumer confidence will slow down consumer spending which, together with the lower wholesale sales reported last week signaling a sell-off in inventories, is indicating that third-quarter U.S. economic growth is likely to be near 1% (annualized) rather than the 4.1% being forecast by the Atlanta Federal Reserve Bank.

  • The Consumer Sentiment Index (U of Michigan) dropped in August, reflecting tighter credit conditions, cooling labor markets and higher gasoline prices and interest rates.

The S&P 500 closed the week down 0.6% bringing its year-to-date gains to 16.7%. 

  • Q2 earnings turned out better than expected with profit margins averaging 11.9%, compared to a 20-year average of 8.9% for the S&P 500 and giving rise to analysts boosting their 12-month forward earnings estimates.
  • Companies are forecasting a strong pick up in capital spending over the coming 12 months (Factset) adding to the big boost in business investment in Q2.

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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