Vinod Bhat's Market Pulse - Aug 9, 2022
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Vinod Bhat's Market Pulse (Aug 9, 2022):
The S&P500 has bounced almost 13% from its 52-week low of 3,667 reached on June 16. One of the main reasons is that, despite the dismal US GDP report, the earnings season has not been as bad as feared although there were some warnings around future profits.
π Around 75% of the S&P 500 have reported Q2 results and earnings growth has come in at 6.8% yoy vs the estimated 5.6%.
π US inflation data to be released on Wed would be the next catalyst for the near-term market swings as it will determine Fed policy action. While markets are expecting a reading of 8.8% yoy and inflation to have peaked out, itβs unclear how long inflation will persist at stubbornly high levels.
π Forward-looking prices have been holding their own or declining. Elon Musk commented that over half of the material costs to produce Teslas are now declining for the first time since the pandemic began. That is positive news for the goods sector of the economy.
π At the same time, wage costs are rising due to the tightness in the US labor markets and wage pressure and high inflation in the service sector of the economy is expected to continue.
π If the Fed focuses on the official backward-looking inflation and employment data, it will continue its hawkish direction and can risk over-tightening the US economy into a deeper slowdown. On the other hand, if the Fed recognizes the forward-looking inflation inputs β like sensitive commodity prices and the money supply growth declining βthey would start to pivot to a less hawkish approach.
Itβs wait-and-watch for now.