You’re probably sick and tired of hearing about inflation. Unfortunately, it’s still on every investor’s radar as lowering interest rates are dependent on inflation falling. And falling inflation is good for our stock market. So, it’s these numbers we must continue to watch and act accordingly to make sure we’re invested in the right places.
Let’s get into it.
What the latest US inflation numbers look like…
Last Wednesday, US inflation data covering July pointed to continued “disinflation.” In other words, prices are still rising, but at a slower pace than the 40-year highs of recent history.
The July CPI showed 0.2% monthly growth and was 2.9% higher than a year ago. That’s the lowest headline number since March 2021.
In fact, since 1984, the US inflation rate has averaged 2.9%. That means we have finally landed in ‘back-to-normal’ territory.
That’s great news for everyone. Although many people have not yet felt the impact on their budgets.
And interest rates?
The day after US inflation numbers came out, there was another round of jobless-claims data. And for the second straight week, the report showed lower numbers than the prior seven days. However, initial jobless claims also remain in a longer-term uptrend since January.
Due to recession concerns after the US July jobs report, federal-funds futures traders had expected the Fed would cut rates by 0.5% at its next policy meeting in September.
Yet now they think the central bank will cut its rate by 0.25%. The odds of a 0.25% cut in September are now near 75%.
Looking even further forward, the market is pricing in between eight and nine rate cuts over the next year.
That’s enormously positive news.
Higher rates choked off economic activity over the past two years, freezing the housing market, stifling the auto market – suppressing pretty much every debt-driven market out there.
A fall in interest rates will provide much-needed relief for highly indebted consumers and companies.
And more importantly, it could support a big rally in all stocks!
Investor’s sentiment is up for now
The VIX (Volatility Index) has come back down to reasonable levels after soaring in the first week of August. The S&P 500 Index and NASDAQ have rebounded 4% and +5%, respectively. Even the JSE All Share hit a new high!
But investors remain jittery especially because of renewed recession fears and the Bank of Japan policy and we can expect further market shocks over the coming months.
In an uncertain market environment like the one we find ourselves in today, it’s hard to know where to invest your hard-earned money that will lead to solid profits and not devastating losses.
To counteract this reality, I’ve just introduced a “Retirement Parachute” strategy to my Real Wealth readers. Think of it as a “safety-net”… One that can help you minimise volatility, protect your portfolio from any potential future market crashes, and provide growth opportunities that I believe will be able to weather any volatility or potential recessions.
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