Investors were pleasantly surprised last week by the better-than-expected readings for the Consumer Price Index (CPI) and Producer Price Index (PPI) for June on both the headline and core levels. They elevated optimism for the end-of-month Personal Consumption Expenditures (PCE) report, the Fed’s favorite inflation gauge, writes Sam Stovall, chief investment strategist at CFRA Research.

Action Economics (AE) forecasts a June Y/Y headline PCE rise of 3.0%, down from May’s 3.8% and well below the 40-year high of 7.0% in June 2022. The Y/Y core reading is also seen falling to 4.1% from 4.6%. Even though CFRA expects a 25-basis point rate increase at the July 25-26 FOMC meeting, we think an additional hike in September is unlikely.

Meanwhile, investors have a low Q2 EPS bar to contend with. Yet, if JPMorgan Chase & Co.’s (JPM) better-than-expected Q2 results are any indication, companies again managed expectations quite well, allowing for the only surprise to be to the upside and likely causing actual results to exceed end-of-quarter estimates for the 55th time out of 57 quarters.

Not surprisingly, all sizes, styles, and sectors within the S&P Composite 1500 gained in price week to date (WTD) through July 13, led by small- and mid-caps, the S&P 500 Value index, and the communication services, consumer discretionary, and energy sectors. Laggards included consumer staples, health care, industrials, and utilities.

Finally, 91% of the S&P 1500’s sub-industries were higher on the week, led by homefurnishing retail, housewares and specialties, and tires and rubber, while coal and consumable fuels, integrated telecom services, and property and casualty insurance were the deepest decliners.

Subscribe to CFRA Research here...