The Dow Jones Industrial Average (DJI) soared alongside other indexes after the release of the July CPI report. During the Wednesday, August 14 trading session, the Dow peaked at over 300 points. It is up over 240 points since the start of the week.
The July CPI Report
US CPI inflation rose 2.9% in July, the smallest increase since March 2021. It also marks the first time that inflation has been reported at below 3%. Analysts were expecting a 3% figure. The dropping inflation has helped to reassure analysts that the Fed could cut rates in September.
While consumer-level inflation is down, investors hope for further reports below forecasts. This follows the release of the Produce Price Index (PPI) earlier in the week, which showed a bigger-than-expected drop in producer-level price pressure.
However, the drop in price pressure has not been passed on to consumers one-on-one. Due to this, analysts now predict a 40% chance that the Fed will double-cut rates on September 18. Before the data, the odds were 50% at the start of the week, according to FedWatch.
Dow Jones Forecast
The Dow is now resting comfortably above 40,000 points, 4.2% higher than its recent bottom of 38,383. Investors have their eyes set on the all-time high above 41,200, last set in July 2024.
High Interest Rates
Interest rates have been at over 5.25% for over a year, an over 20-year high. The Fed plans to foster a soft landing without triggering a recession.
For most of 2023, it seemed that the Fed was on its way to achieving a soft landing after inflation peaked at 9.1% in June 2022. Hopes of a soft landing were eliminated when the July jobs report revealed that unemployment was at 4.3%, the highest since October 2021. The report made the market panic, triggering a selloff on August 5.
However, the selloff appears to have been an overreaction, and by Thursday of last week, the market surged after the weekly report showed a drop in jobless claims. That report saw the S&P 500 rise 2.3%, its biggest single-day gain since November 2022.
How Low Could The Fed Go?
Analysts forecast a cut on September 18, 2024. However, with inflation still above the Fed’s 2% goal, there is doubt about how big those cuts could be.
According to the Fed, its goal is to balance price increases and the job market. During the last FOMC meeting, Jerome Powell said the Fed’s focus was no longer on inflation due to the progress made thus far.
Analysts now expect the Fed will cut the rate by 25 basis points. Analysts were evenly split before the data came out between a 25-basis point cut and 50 50-basis point cut.
How to Invest with CPI Data
If you believe the CPI will be higher than forecast, the best option is value stocks. These are cheap or undervalued stocks. If you believe the CPI will be lower than forecast, this is a good time to invest in commodities. However, one indicator is not a predictor of market trends. The financial markets are complex and require you to stay updated on the markets.
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