John Hancock: Weekly Market Recap Week Ended August 14

Moderating inflation

Two reports reflected elevated but modestly easing inflationary pressures at the consumer and wholesale levels. The Consumer Price Index held steady at a 3.4% annual rate in July, slightly below June’s 3.5% figure. A subsequent report on producer prices showed inflation was little changed in July relative to the previous month.

Robust revenue

The nearly completed earnings season has been strong on a revenue basis, not just in terms of profits. Companies in the S&P 500 were on pace to record second-quarter revenue growth of 15%, the highest rate since the fourth quarter of 2021, according to a report from FactSet released August 10. As for profits, companies were on track for an earnings growth rate of more than 50%, the strongest since 2021’s second quarter.

Elevated yields

Concerns about long-term inflationary pressures boosted the yield of the 30-year U.S. Treasury back to a level it had reached two weeks earlier, which was the highest since 2007. On Friday afternoon, the 30-year yield was around 5.26%, while the 10-year Treasury yield remained elevated at 4.69%. In contrast, the 2-year Treasury yield was slightly lower for the week at 4.17%.

Rate outlook

Bond market trading continued to reflect declining expectations for a U.S. interest rate increase at the mid-September U.S. Federal Reserve meeting. Friday’s trading in rate futures markets implied a roughly 67% probability that the Fed would keep its benchmark rate unchanged, versus a 33% probability that the Fed would raise it by a quarter-point, according to CME FedWatch. Just two weeks earlier, prospects for a September rate increase were at 67%.

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