Market Pulse: Growth Surges as Inflation Eases | July 26, 2024
The latest economic data paints a great picture for the markets and the economy. Yesterday’s GDP report showed stronger growth than expected, meaning the economy is solid and expanding. This is good news for the stock market because it hints at higher corporate earnings. Today’s PCE data reveals that inflation is still dropping, which is crucial as it reduces costs for businesses and consumers, aligning with the Federal Reserve’s goals.
Core PCE rose by 0.2% month-over-month, slightly up from last month’s 0.1%, hitting expectations. The headline PCE also met expectations at 0.1%. Year-over-year, core PCE is now at 2.5%, down from 2.6%, getting closer to the Fed’s 2% goal.
Personal income grew by 0.2%, below the expected 0.4%, with last month’s numbers revised lower. Personal spending matched expectations at 0.3%, with a slight upward revision from the previous month. This suggests consumer spending is steady, and inflation is gradually cooling.
Regarding the Federal Reserve, the CME FedWatch tool shows there’s a very low chance of a rate cut at next week’s meeting, signaling current economic stability. However, the likelihood of rate cuts in November and December has increased to over 50%, suggesting the Fed might ease monetary policy later this year.
The bond market is reacting, with the 10-year Treasury yield dropping to around 4.21–4.22%. This fall suggests that investors expect lower future interest rates, consistent with FedWatch tool predictions.
Overall, strong GDP growth and falling inflation create a positive scenario for the markets. This means a healthy economy with controlled inflation, less need for aggressive rate hikes, and a supportive environment for growth and investor confidence, likely leading to higher market valuations.
To summarize, the economy is doing well with solid growth and decreasing inflation, which is good for the stock market. The Federal Reserve might cut rates later this year, making the future look positive for investors.
