Wall welcomes inflation with a jump of more than 1.5%

The US market seems to be finding the confirmation it has been looking for in recent weeks in the inflation data, with all three indicators celebrating a significant slowdown in price growth.

In particular, the industrial index Dow Jones makes a jump of almost 500 units or 1.5% at 33,270 unitsthe broadest market index S&P 500 is enhanced by 1.7% at 4,191 unitsas is the tech-weighted Nasdaq which is 12,762 units with rally 2.2%.

In the news of the day, as it was announced before the start of trading, the Consumer Price Index rose in July at an annual rate 8.5% retreating significantly from a 40-year high at 9.1% of June, at a time when analysts were expecting a milder retreat in 8.7%.

On a monthly basis, inflation remained unchanged, while the structural part of the Index, which does not include the highly volatile food and energy prices, remained unchanged on an annual basis in 5.9% versus market estimate for acceleration to 6.1%.

Although inflationary pressures remain more than intense in the US economy, the market seems to believe that today’s measurement confirms the assessment of Fed chief Jerome Powell, that the bank should now move more gently in the tightening of monetary policy.

The US central banker had indicated the above position in the latest rate hike of 75 basis points (second in a row) sparking a market counterattack, with the S&P now up more than 15% from June lows.

Significantly, following the release of inflation data today bets on the Fed’s next move in September have completely reversed, with the prospect of another mammoth 75 basis point rate hike plummeting to 32% from 68% which was before the announcements.

It is recalled that on Friday the unexpected resilience shown by the labor market, showing more than double the estimates of new payrolls in July, had caused tremors on Wall Street with investors fearing that these data commit the Fed to new aggressive moves.

As Nancy Davis of Quadratic Capital Management noted today, however, “the slowdown in CPI for July is probably a big relief for the Fed, especially since the Fed had mistakenly insisted that inflation was transitory.”

“If we continue to see inflation decline, the Federal Reserve may be able to begin to slow the pace of monetary tightening,” he adds.

At the same time, with the announcement of the data, US government bond yields fell sharply, removing some of the pressure they usually exert on growth bonds.

Indicatively, after consecutive bearish sessions, the technology-weighted Nasdaq has regained its momentum, once again taking the lead in the market’s counterattack, as has been the case all along.

Characteristically, the tech giants have returned to strong earnings, with Facebook’s parent company Meta to rally 5.6%the Amazon is enhanced by 3%Google’s parent company Alphabet moves to +2.3%the Apple in the +2% and the Microsoft in the +2.2%.

At the top of the Dow Jones is Salesforce with +3.4%JPMorgan, American Express and Goldman Sachs all move in its territory +3%while it is characteristic that out of the 30 shares of the index only one is negative.

“The market appears to be taking comfort in the fact that we appear to be past the peak of inflation and will logically continue to see declines in the second half of the year,” said Brian Price of the Commonwealth Financial Network.

He adds that “if energy prices continue to fall, then I expect we’ll see inflationary pressures ease over the coming months,” a dynamic that Price says “should support risk assets while we’ll probably also see decline in long-term interest rates”.

The S&P 500 with today’s rise is now at highs seen since May, having limited its losses for the year to 12% after also entering bear market territory in June (down more than -20%).