Inflation Reaches Over 3-Year Lows, Rate Cuts Are Getting Closer, Trump Dominates Debate: This Week In The Market

The Federal Reserve's most closely monitored inflation measure — the Personal Consumption Expenditure price index — reached its lowest level since March 2021 in May, registering an annual rate of 2.6%, in line with economist expectations.

The inflation figures released Friday indicate that price pressures are trending toward the Fed's 2% target, solidifying market expectations for interest rate cuts. September is now seen as the most likely month for the first rate cut, followed by another by the end of the year, and potentially three more next year, according to market prediction data.

The first presidential debate concluded with a spike in Donald Trump's win probabilities to about 60%, as President Joe Biden's performance was widely viewed as disappointing. The odds of Biden being replaced have increased with just about four months left until the election.

Economists say the policies of both candidates are inflationary and fail to meaningfully address the fiscal and debt issues facing the U.S. economy.

FedEx Corp. FDX and Carnival Corp. CCL led the week's best performances within the S&P 500, with both posting double-digit share price increases amid strong earnings reports and optimistic guidance. Conversely, Walgreens Boots Alliance WBA and Nike Inc. NKE each plummeted over 20% due to disappointing quarterly results.

Market Breadth Warnings

Veteran investor Ed Yardeni warns of a “bad breadth” problem in the stock market, with performance heavily reliant on Nvidia Corp. NVDA. This dependency on a few tech stocks increases the risk of a market downturn if these investor darlings falter.

Banks Show Resilience

American banks have proven solid and resilient in maintaining minimum capital requirements even in highly adverse economic scenarios, as demonstrated by the latest Federal Reserve stress tests released this week. Yet institutions might still face greater losses than those projected in the previous year's assessments.

Pandemic Savings Depleted

U.S. household pandemic savings have dwindled, leading to rising delinquencies and record-high debt. The Federal Reserve Bank of San Francisco estimates that excess savings peaked at $2.1 trillion in August 2021 but are now fully depleted. Economists warn that consumers’ financial stability is now tied to current income.

Tesla's New Models

A Goldman Sachs analyst predicts Elon Musk will launch lower-cost Tesla Inc. TSLA models soon, including a smaller Model 3 and a van, with the more affordable Tesla vehicles potentially selling at least 100,000 units per year.

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