Weekly Market Update: July 25, 2022

Alex Ralicki |

The June inflation figures were very “hot.” The Producer Price Index (PPI) report looked very much like the companion Consumer Price Index data. Producer prices surged 1.1% and 11.3% on a month-to-month and year-over-year basis, respectively. The latter reading was the largest increase since the record 11.6% advance set in March of this year.

One silver lining to the inflation reports was a smaller-than-expected increase in the core PPI. That figure, which excludes the food and energy components, showed a moderate month-to-month rise of 0.4%. This may be a sign that the Federal Reserve’s attempt to slow demand is starting to influence the wholesale level and, in time, may trickle down to the consumer sector and lead to a moderation in overall prices.

The recent economic data have been mixed. On the positive side were healthy increases in June job creation and retail sales. Conversely, the housing and homebuilding sectors are showing notable signs of slowing. The National Association of Home Builders/Wells Fargo Housing Market Index tumbled in July, marking the largest single-month drop in builder sentiment in the survey’s 37-year history with the exception of April 2020 at the start of the pandemic stateside. Thus...

Wall Street is not convinced that the more-restrictive central bank will avoid pushing the economy into a recession. The recent inversion of the Treasury yield curve, which occurs when shorter-term Government notes have higher yields than longer-term durations, bears watching. It has been a pretty reliable indicator of a forthcoming recession or at any rate slowing growth.

Second-quarter earnings season got off to a lackluster start. As a whole, the big banks reported disappointing bottom-line results, blaming a drop in investment banking activity and increased loan loss reserves. Perhaps this suggests business investment and deal-making are slowing, as corporations worry about a recession.

Conclusion: Recent trading activity is suggesting that investors may now be more concerned about a recession than inflation.

Source: ValueLine.com