Technology leads S&P sector gainers; consumer discretionary weakest group
Dollar, gold gain; U.S. crude, bitcoin slip
U.S. 10-year Treasury yield flat at ~4.68%
Investors reacted with some relief as the latest inflation report was largely in line with expectations and U.S. consumer prices barely increased in July.
Economists point to mixed details beneath the headline number
Regarding the 3.4% annual inflation data point, LPL Financial's chief economist, Jeffrey Roach, said, "Still too high but the direction is good."
He pointed to a decline in energy prices during July, when investors "had high hopes that the Middle East crisis would improve." However, with the U.S. and Iran looking no closer to a deal at the time of reporting, Roach described the high hopes as short-lived.
He also focused on auto insurance prices, which fell for the eighth time in the last nine reports, and noted that the index now sits at mid-2024 levels. But Roach cautioned that it might be too soon for motorists to celebrate as "we have an uncomfortably high level of uninsured or underinsured motorists on the road so those who pay for insurance will not likely see premiums back to normal."
Then the economist looked at restaurant prices which continued to rise "mostly from high consumer demand and less from supply constraints."
So he said that with restaurants being "busy on just about every day of the week," consumers can't really "expect much moderation in this category."
Appearing to support his point, restaurants were among the top performers in the declining consumer discretionary sector .SPLRCD on Wednesday with Yum Brands YUM.N and Chipotle CMG.N climbing more than 2% while Darden Restaurants DRI.N rose nearly 2%.
Then there are airfares, which are up roughly 26% from a year ago. However, the S&P 500 passenger airlines index .SPLRCAIR was down 1.3% on the day.
But Roach noted that the airline category can change quickly, and that he is expecting the sector to contribute less to inflation in the latter part of the year.
Brian Jacobsen, chief economic strategist at Annex Wealth Management, wrote that "inflation isn’t flashing code red. It’s still not great, but it is trending in the right direction."
However, he pointed to "pockets of extreme price pressure" such as a 21.2% year-over-year increase in the computer software and accessories category. Then on the other side, the strategist highlighted that shelter and insurance inflation was trending lower.
"There isn’t clear evidence that volatile energy prices are feeding into other parts of the consumption basket. An inflation-fatigued consumer is helping cap what costs producers can pass on to consumers," Jacobsen said.
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