Weaker Inflation And A Positive Start To Earnings Season Has Stocks Looking To Add To Gains

Key Takeaways

• Inflation Slowing
• Earnings From Banks Start Strong
• Ripple Ruling Boosts Digital Assets

Stocks have been on a tear this week following encouraging data on inflation and hopes earnings season will show continued strength. On Thursday, the S&P 500 added 0.8% while the Nasdaq Composite was up over 1.5%. The gains were widespread helping to push the majority of stocks in the S&P 500 up over their 50 day moving average. With earnings season beginning today, we’ll see if stocks can continue adding to their gains.

On Wednesday, markets were greeted with a weaker than expected Consumer Price Index (CPI) report and on Thursday, that report was followed up by a weaker than expected Produce Price Index (PPI) report. Taken together, both reports further my opinion which I’ve shared before that inflation, while still increasing, is doing so at a slower and contained pace. The optimism that inflation has been largely tamed was also seen in the yield curve. While it continues to remain inverted, we did see a significant flattening Thursday.

In addition to the yield curve, there are some other, more specific, points of evidence that inflation is cooling. Nationwide, average gas prices are down to $3.54 per gallon from $5 in June of 2022. Airfare prices have fallen 19% on a year-over-year basis and the prices on used cars are also down over 5% from last year.

While we are seeing prices come down in a number of places, there are a couple other areas not cooperating. Rental prices have continued rising with average prices up over 8% from June 2022. Then more recently, we’ve begun seeing the price of oil increase. On Thursday, crude oil prices closed at $76.66 per barrel. After hitting a low of near $63.50 in May, prices are now up 12% from where they closed out May and 5% this week alone. I’m closely watching oil prices because any increase in oil will quickly be felt throughout the economy.

Taking a look at some individual stocks making news, shares of Amazon
AMZN
are up nearly 4% this week. Amazon reported this year’s Prime Days sale was its best ever, with Tuesday being the strongest single day of sales in company history. The impressive strength of the two day event may be a sign that consumer spending continues to remain strong. Shares of Disney were up slightly on Thursday following news the company has extended Bob Iger’s tenure and comments by Iger that the company will likely seek a strategic partner for ESPN and that their legacy TV networks, including ABC, and FX may “not be core to Disney.” Those comments could open several potential possibilities for the company that are worth watching. Also, shares of Google
GOOG
parent Alphabet were up nearly 5%. The company announced their AI chatbot, Bard, is now available in Europe and Brazil.

On the earnings front, shares of JP Morgan, Wells Fargo
WFC
and United Health Group are all trading higher in premarket following better than expected earnings. In his post earnings comments, Jamie Dimon of JP Morgan said the economy remains resilient and consumers are continuing to spend, albeit at a slightly slower pace.

A couple other items worth mentioning. In what could be a major boost to digital assets, a NY District Court ruling partially in favor of Ripple, sent digital assets higher. The court ruled Ripple’s XRP
XRP
tokens sold on exchanges did not constitute investment contracts. The decision was seen as victory for Ripple and welcome news in the crypto space. Finally, the VIX closed Thursday at 13.61 and remains at levels we haven’t seen since the beginning of 2020. This suggests the market isn’t losing much sleep over anything at the moment. However, it is also worth noting that complacent markets can become vulnerable to unexpected news. Next week, the pace of earnings will pick up with companies such as Netflix
NFLX
and Tesla
TSLA
scheduled to report after the close Wednesday. Therefore, there are some potential volatility catalysts lurking. 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.