Looking past inflation figures and Delta variant trends, stocks last week found a way to climb higher and set fresh record highs in the process. The Dow Jones Industrial Average rose 0.87%, while the Standard & Poor’s 500 advanced 0.71%. The Nasdaq Composite index was flat (-0.09%) for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 0.77%.1,2,3
Stocks moved higher amid relatively light trading last week. After initially retreating under the weight of Delta variant updates, stocks grinded higher, catalyzed by the Senate’s passage of a $1 trillion infrastructure bill.
Two themes emerged last week. The first was that inflation assumed a less threatening profile. The most recent Consumer Price Index report showed some moderation in consumer price increases, while investors appeared to interpret a hotter-than-expected Producer Price Index report as the peak in this inflation cycle.
Also worth noting were comments by multiple Federal Reserve Bank regional presidents suggesting that the time for tapering (i.e., ending the Fed’s bond purchases) was nearing, with one intimating that tapering could start as early as October.4
Consumer prices climbed at their fastest rate since August 2008, rising 5.4% year-over-year. But this elevated rate was expected by most economists. The core inflation rate (excludes the more volatile food and energy prices) came in 4.3% higher, substantially lower than anticipated. This deceleration in core inflation was largely attributed to a slowdown in price increases in used cars and apparel.5
More unsettling was the following day’s Producer Price Index (PPI). The PPI, which can be an indicator of future consumer prices, came in at the highest rate since tracking began, surging 7.8%.6
Footnotes and Sources
2. The Wall Street Journal, August 13, 2021
3. The Wall Street Journal, August 13, 2021
4. The Wall Street Journal, August 11, 2021
5. CNBC, August 11, 2021
6. Reuters, August 12, 2021
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Weekly Market Insights: Passage of Infrastructure Boosts Stocks
August 16, 2021