Stocks Rise on Favorable Inflation Data, but Jobs Concerns Weigh
The stock market saw a strong start on Thursday as investors reacted positively to the latest inflation data. However, as the trading session progressed, concerns over the jobs market dampened the initial enthusiasm, resulting in the main benchmarks finishing the day far from their starting point.
According to data from the Bureau of Labor Statistics, the July Consumer Price Index (CPI) increased by 0.2% month-over-month and 3.2% year-over-year. While the annual increase was slightly higher than the 3.0% seen in June, the core CPI, which excludes volatile food and energy prices and provides a better indication of future inflation, rose 0.2% on a monthly basis. Year-over-year, core CPI increased by 4.7%, slightly below June’s 4.8% rise. Notably, shelter and food prices recorded the biggest increases.
In contrast to the favorable inflation data, the Labor Department reported that initial jobless claims increased by 21,000 last week, reaching 248,000. This figure represents the highest level since late June and has raised concerns about the tightness of the labor market.
Mike Loewengart, the head of model portfolio construction at Morgan Stanley, noted that the latest data supports the Federal Reserve’s stance on inflation. Loewengart stated that while the increase in jobless claims may offer hope for a looser labor market, it is important to look for a clear trend in the monthly numbers. Loewengart believes it is unlikely that the Fed will start cutting interest rates but suggests that they may leave rates unchanged next month.
Following the release of the economic data, expectations remain that the Fed will maintain interest rates at their current level during the September meeting. According to futures traders on CME Group, there is a 91% chance that there will be no rate hike in September, and no further increases or decreases are anticipated for the remainder of the year.
In single-stock news, Capri Holdings (CPRI) experienced a surge of 55.7% in its stock price after luxury retailer Tapestry (TPR) announced its acquisition of the parent company of Michael Kors for $8.5 billion in cash. This acquisition represents a nearly 65% premium to CPRI’s closing price on Wednesday. However, TPR’s stock price slumped 15.9% in response to the news.
According to Wells Fargo analyst Irwin Boruchow, the deal is considered transformative for Tapestry, reshaping the landscape of the handbag market, particularly in the U.S. Boruchow emphasizes that the addition of Michael Kors solidifies Tapestry as the leading player in the accessible luxury handbag market in the U.S., significantly ahead of its competitors. The addition of Versace and Jimmy Choo also positions Tapestry to compete with major European luxury stocks.
In terms of major indexes, all three experienced gains of over 1% mid-morning but relinquished most of these gains by the close of the day. The Dow Jones Industrial Average outperformed the other indexes, finishing 0.2% higher at 35,176, thanks to a jump in Walt Disney (DIS) stock following the release of earnings. While Disney reported higher-than-expected fiscal third-quarter earnings, its revenue fell short of expectations. The company also announced price increases for its Disney+ and Hulu streaming services, although cheaper ad-supported versions will still be available. The S&P 500 (+0.03% at 4,468) and the Nasdaq Composite (+0.1% at 13,737) also ended the day with modest gains.
Analyst comment
Positive news: Stocks rise on favorable inflation data.
Negative news: Jobs concerns weigh on market.
Neutral news: Mixed performance of major indexes, some gains but not sustained.
As an analyst, the market may experience volatility in the short term due to concerns over the jobs market, but the overall positive inflation data may provide some support for the market in the long run.
