Fundamental Analysis

Equities Bounce Back Ahead of Key Inflation Report

  • The benchmark S&P 500 has risen by 17.7% this year.
  • The upcoming US consumer price report will provide insights into the Fed’s policy.
  • Investor confidence in the Eurozone surprisingly improved in August.

US equities rebounded on Monday, recovering some ground lost the previous week. Investors increased their holdings in anticipation of Thursday’s eagerly anticipated US inflation report.

Last week, the main stock indexes experienced declines. Investors took profits following months of gains due to concerns about economic data, mixed earnings, and rising Treasury yields.

In 2023, US stocks surged significantly. The benchmark S&P 500 has risen by 17.7% this year, driven by optimism surrounding artificial intelligence and expectations for a smooth landing of the world’s largest economy. 

Although August trading tends to slow down due to summer vacations, planned events, and data releases can still provide investors with new insights.

This Thursday, the upcoming US consumer price report will provide insights into the Federal Reserve’s future monetary policy direction. Friday’s employment report revived concerns that the central bank might maintain higher interest rates for an extended period.

According to a report, John Williams, New York Fed President and a voting member this year, indicated that he foresees a decline in interest rates beginning in early 2024. Meanwhile, Governor Michelle Bowman stated that additional interest rate hikes will be needed to bring down inflation to the targeted 2%. 

Overall, second-quarter earnings have surpassed expectations thus far. Refinitiv data indicates that as of Friday, 79.1% of the 422 S&P 500 companies that reported earnings had exceeded analysts’ estimates.

Meanwhile, European equities increased on Monday while investors awaited crucial inflation figures worldwide this week. The goal is to assess the potential direction of interest rates. Additionally, the defense sector reached record highs due to escalating geopolitical uncertainty.

The benchmark STOXX 600 experienced its first weekly decline in four weeks on Friday. This was due to a combination of factors, including mixed US job data, a slowdown in business activity within the Eurozone, and an unexpected credit rating downgrade in the US – all of which negatively impacted the overall sentiment.

Eurozone investor confidence (Source: Sentix GmbH)

Eurozone investor confidence (Source: Sentix GmbH)

Meanwhile, a Sentix survey revealed that investor confidence in the Eurozone unexpectedly improved in August. This marked a reversal from three consecutive months of decline. This shift in sentiment was attributed to a decrease in the explosive impact of inflation.