Weaker Than Expected CPI May Suggest Inflation Is Under Control

Key Takeaways

• CPI Slows Down
• Prime Days Strength
• Earnings Season Begins

On Tuesday, stocks edged higher with the S&P 500 adding 0.7% and Nasdaq Composite up 0.6%. Energy stocks led the way on the back of oil prices. Crude oil, which has been stuck in a range, was up 2.5% to $74.83 per barrel and is indicated slightly higher in premarket trading. Today; however, will be about inflation and the Consumer Price Index (CPI) report.

For the month of June, core CPI was up 0.2% compared with May and 4.8% from a year ago. That compares with expectations of an increase of 0.3% month-over-month and 5% on a year-over-year basis. Heading into this morning’s report, it was a forgone conclusion the Fed will raise rates later this month by a quarter of a percentage point. However, expectations for the September meeting overwhelmingly had interest rates unchanged. Today’s weaker than expected report will likely do little to change interest rate forecasts for this month or September. The report also seems to further support my opinion that while inflation continues, it is being contained.

Elsewhere, today marks the second and final day of Amazon’s
AMZN
annual Prime Days sale. Prime Days have lost a bit of their luster in the last few years. In fact, revenue growth generated from the two-day sales hasn’t exceeded 10% in two years. However, this year the company is projected to post an 11% increase and as of Tuesday afternoon, average order size had increased nearly 8% from last year. I find this particularly interesting when juxtaposed against a report this morning from Deloitte regarding consumer spending.

Deloitte is forecasting a drop in back to school spending this year of 10%. The report cites inflation and worsening personal financial conditions as the primary reasons for the drop. Back to school shopping is often seen as a precursor for holiday spending. Therefore, I’m closely watching to see how Prime Days perform and if, perhaps, it changes perceptions for back to school shopping and subsequently, forecasts for holiday shopping.

Another big story Tuesday was the ruling in Microsoft’s
MSFT
bid to acquire Activision
ATVI
Blizzard. The Federal Trade Commission (FTC) was seeking to block the proposed $75B merger. U.S. District Court Judge Jacqueline Scott Corley ruled Tuesday that the FTC had failed to make their case that the merger would harm competition. The FTC had spent an extraordinary amount of time and money seeking to block the deal and the ruling was seen as a major blow to the FTC. However, there is word this morning the FTC may seek to file an appeal in the case as early as today.

Finally, tomorrow morning Delta Airlines and PepsiCo
PEP
will announce earnings and then on Friday morning, banks will begin reporting. Currently, it’s estimated that corporate earnings will be down a little over 7% from a year ago. Given the meteoric rise in equity prices, especially the tech sector, I’m very interested to see not only how companies performed in the second quarter, but also what they have to say regarding the rest of this year. Most analysts and market watchers have been caught off guard by rising equity prices in the face of rising interest rates. Many of those analysts have also been calling for a recession that has yet to materialize. Therefore, second half forecasts issued by these companies are something to which I’ll be paying close attention. As always, I would stick with your investing plans and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.