Soon as the Labor Department released the inflation numbers, the US Treasury Yield surged 4 basis points on Tuesday. The Fed noted that the inflation worries will be temporary.
On Tuesday, July 13, Wall Street remained under pressure on the outcome of inflation data from the US Labor Department. Entering a correction zone, Dow Jones Industrial Average (INDEXDJX: .DJI) and the S&P 500 (INDEXSP: .INX) tanked 0.3% each.
In June 2021, inflation surged at the highest rate in 13 years at 5.4% over the last year. On the other hand, Dow Jones economists had predicted a 5% surge. The higher-than-expected inflation has overshadowed the market optimism for the second quarter’s earnings season.
The core Consumer Price Index (CPI) surged 4.5% showing its sharpest move since September 1991. Moreover, it was 20% higher than the expected 3.8%.
The inflation pressure was visible on Wall Street as all three major indices headed lower. At the same time, the 10-year Treasury Yield jumped more than 4 basis points or 0.04%. Although in a delayed reaction to the inflation data, the U.S. Treasury Yield has crossed 1.4%. Cliff Hodge, chief investment officer at Cornerstone Wealth, told CNBC:
“A white-hot June CPI print has the markets jittery. Moving forward we expect these inflation numbers to begin to cool. June 2020 was the absolute low for Core CPI during the pandemic shutdown, so the comparisons get tougher from here. Used car prices soared 45% year over year which is not likely to persist in coming months.”
Federal Reserve Chairman Jerome Powell will appear in front of Congress on Wednesday and Thursday to provide an update on the monetary policy. Wall street shall be looking forward to his comments on the inflation surge. On the other hand, Powell said that the Fed won’t be increasing interest rates until unemployment data improves.
Mary Daly, the President of San Francisco Federal Reserve told CNBC that this inflation surge is temporary. Daly is hopeful of a strong economic recovery which will allow the Fed to taper its purchases by the end of this year.
On the other hand, overall earnings report for the second quarter are likely to be excellent. As polled by the analysts at FactSet, the bank’s earnings will more than double for the second quarter. There will be an estimated 199.5% growth year-over-year. Jeff Kilburg, chief investment officer at Sanctuary Wealth said:
“High expectations for earnings and each companies’ forward guidance will push markets higher or disappointment may create a small pullback in equity markets. Eyes will be on the major banks to set the tone for the next few weeks of earnings.”