Rate Hike Speculation Cools As US Producer Inflation Softens, Economist Predicts S&P 500 To Reach 5,000 By Year End

Economic data issued Thursday indicates a marked reduction in pricing pressures in June, causing many investors to anticipate an end to the Federal Reserve's interest rate hike cycle, except for one final 25-bps hike in July.

What Happened: The Producer Price Index (PPI) increased by 0.1% in June, data issued by the Bureau of Labor Statistics showed. The cool number follows May’s revised 0.4% drop, undershooting the expected 0.2% rise.

In year-on-year terms, the PPI grew 0.1%, far below May’s downwardly revised 0.9% reading and notably below the expected 0.4% figure, marking the lowest annual PPI inflation rate since August 2020. Read more on the PPI print here.

Bill Adams, Chief Economist for Comerica Bank, noted, “The last six months have seen a big slowdown in total inflation while core inflation held high. The next six months will likely see slightly higher total inflation as core inflation slows.”

Jeffrey Roach, Chief Economist for LPL Financial said, “The decline in wholesale prices, especially for transporting freight, foreshadows a slowdown in both economic activity and a further deceleration in consumer prices throughout the balance of 2023. This is another positive report for investors desperate to see inflation dissipate.”

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Meanwhile, Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance said in a statement to Benzinga, “The disinflation narrative is in full effect with less-than-expected PPI numbers today following on the heels of lower-than-expected CPI numbers yesterday.”

Zaccarelli sees the strong labor market as a possible factor helping to bring down inflation rates, and advises investors to consider both stocks and bonds as the economic landscape continues to evolve.

Speaking of labor markets, the Department of Labor reported a lower-than-expected increase in weekly unemployment claims (237,000 versus 250,000 forecast) confirming a still relatively healthy jobs market.

Peter Essele, Head of Portfolio Management for Commonwealth Financial Network, said the PPI came in lower than expected, strengthening Wednesday's CPI release that prices are easing across all segments of the economy.

“From an economic and market perspective, the second half of 2023 is shaping up to be much stronger than the first half. We could easily see the S&P 500 top 5000 by the end of the year,” Essele predicted.

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