Easing Inflation Ushers In Breadth Improvement

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Breadth improved across the board last week, as markets may have turned a corner following a soft inflation report.   The Consumer Price Index for June came in at -0.1%, while the market was expecting +0.1%.  Inside the report, several key categories that had been stubbornly high were either flat or lower.  This shifted the futures on the Fed Funds for September.  One month ago, a 25 basis point rate cut by the Fed in September stood at about 60%.  After Thursday's inflation report, futures now stand at an 86% probability of a September rate cut.  In fact, Chicago Fed President Goolsbee, is quoted as saying that "interest rate cuts are soon warranted."  This would give consumers a much-needed break in borrowing costs.

For the past few months, Mega Cap Tech stocks have been in vogue, while the remainder of the market trailed considerably.  That changed last week as Small caps out-performed Large cap nearly 6-to-1 last week, and Mid-cap stocks out-performed Large Caps nearly 4-to-1.  The number of stocks that made new highs toward the end of last week jumped and reached a three-month high.  We need to see more consecutive weeks of this, but it's a good sign for the overall health of the market.  Multiple Fed speakers are due up this week, so interest rates could be a bit choppy this week.

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