Weekly Market Insights: Stocks Have Warmer Week as Inflation Cools

August 16, 2022

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An improving inflation outlook buoyed investors’ spirits last week, helping lift stocks to solid gains.

The Dow Jones Industrial Average advanced 2.92%, while the Standard & Poor’s 500 rose 3.26%. The Nasdaq Composite index added 3.08% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 2.39%.^1,2,3

Lower Inflation Spurs Buying

Stock prices surged mid-week when the U.S. Bureau of Labor Statistics released a better-than-expected Consumer Price Index (CPI) number, with buying momentum building throughout the trading session.

Gains were significant across the board, with technology and small-cap companies leading the market higher. The mid-week rally sent the S&P 500 to its highest level since May and the Nasdaq to its highest level since April. Bond yields fell on expectations that the Fed's pressure to hike rates further might ease. After pausing on Thursday, stocks again ripped higher on Friday, aided, in part, by a report indicating improving consumer sentiment.⁴

Inflation Cools

The Consumer Price Index in July was softer than expected, with prices unchanged from the previous month thanks to a 4.6% decline in energy prices and a 7.7% drop in gasoline.⁴

Despite the encouraging results, the CPI report still evidenced upward price pressure. The year-over-year inflation rate remained at 8.5%, while the core CPI (excluding food and energy) came in at 5.9%. Among the index components seeing substantial price increases were food (+10.9% from 12 months ago) and shelter (+5.7%). Producer prices fell 0.5% in July, suggesting that future consumer price increases may continue to moderate.^5,6

This Week: Key Economic Data

Tuesday: Industrial Production. Housing Starts.

Wednesday: Retail Sales. Federal Open Market Committee (FOMC) Minutes.

Thursday: Jobless Claims. Existing Home Sales. Index of Leading Economic Indicators.

^{Source: Econoday, August 12, 2022
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.}

This Week: Companies Reporting Earnings

Tuesday: Walmart, Inc. (WMT), The Home Depot, Inc. (HD).

Wednesday: Cisco Systems, Inc. (CSCO), Target Corporation (TGT), Lowe’s Companies, Inc. (LOW), The TJX Companies, Inc. (TJX).

Thursday: Applied Materials, Inc. (AMAT), NetEase, Inc. (NTES).

Friday: Deere & Company (DE).

^{Source: Zacks, August 12, 2022
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.}

Help Get Your Federal Withholding Correct With This Tool From the IRS

The IRS has a handy tool called the IRS Tax Withholding Estimator that can help taxpayers better understand their withholding. It’s essential to examine your federal withholding periodically to ensure you are comfortable with the amount of tax withheld.

Checking your withholding status may be a good idea to consider if you have experienced a change that may affect your tax status, such as:

Going through a marriage or divorce
Having or adopting a child
Purchasing a new home
Working two or more jobs at the same time
Only working part of the year
Claiming credits such as the child tax credit

* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov⁷

Footnotes and Sources

^{1. The Wall Street Journal, August 12, 2022}

^{2. The Wall Street Journal, August 12, 2022}

^{3. The Wall Street Journal, August 12, 2022}

^{4. CNBC, August 10, 2022}

^{5. CNBC, August 10, 2022}

^{6. CNBC, August 11, 2022}

^{7. IRS.gov, April 28, 2022}

^{8. CDC.gov, May 26, 2022}