Americans Get Relief from Rising Cost of Living as Inflation Falls
The United States has finally seen some respite from the rising cost of living as inflation fell 0.1% month-over-month in June, beating analysts’ expectations. This news has sparked optimism that the Federal Reserve may soon cut interest rates. Let’s dive into the details and explore why this is a significant development for Americans.
Inflation Falls
According to the Bureau of Labor Statistics, consumer prices rose just 2.97% on an annual basis, the smallest jump in over three years. A 3.8% dip in gasoline prices was the main contributor to this drop, but core inflation, which excludes food and energy prices, also came in cooler than anticipated.
Experts Expect Rate Cuts
Bill Sterling, global strategist at GW&K Investment Management, expressed optimism about the CPI report, stating, "All in all, it was a very encouraging report from the point of view of the Fed. And markets are pretty convinced now that this tees up a Fed rate cut in September."
Many experts believe that the Fed has finally tamed inflation, and interest rate cuts are on the horizon. Citi economist Veronica Clark noted that inflation came in "below already soft expectations" in June, signaling that the hotter-than-expected inflation seen in the first quarter was likely "an aberration."
Why Are Stocks Down?
Typically, interest rate cuts are seen as a net positive for stocks, as lower rates signal lower borrowing costs for companies. However, after the CPI report, two out of three major indices fell. The blue chip S&P 500 sank 0.88%, while the tech-heavy Nasdaq plummeted roughly 1.95%.
There are a few possible explanations for this dip. One reason is that investors shifted away from growth-focused large caps and into mostly value-oriented small- and mid-caps en masse on Thursday. Another possibility is that the market has been rallying in anticipation of rate cuts throughout 2024, so the good news was already baked into the cake.
The Great Rotation
Bancreek Capital Advisors’ Eric Pachman believes that the market is experiencing an investor rotation into more value-focused offerings. He noted that most stocks didn’t fall on Thursday, but big tech and AI-linked stocks that have made investors euphoric over the past two years sure did. This is not a broad-based stock market drop for now, but an investor rotation into more value-focused offerings.
Yardeni Research’s Eric Wallerstein also believes that "the great rotation" may be underway. He pointed out that investors shifted away from large caps and into mostly value-oriented small- and mid-caps en masse on Thursday.
Conclusion
The recent fall in inflation and the resulting optimism around interest rate cuts are significant developments for Americans. As inflation continues to fade, many experts believe that the Fed will begin cutting rates, which could have a positive impact on the economy.
FAQs
Q: Why did inflation fall in June?
A: Inflation fell 0.1% month-over-month in June, with a 3.8% dip in gasoline prices being the main contributor.
Q: Why are experts expecting rate cuts?
A: Many experts believe that the Fed has finally tamed inflation, and interest rate cuts are on the horizon.
Q: Why are stocks down?
A: Stocks fell due to an investor rotation into more value-focused offerings and the good news being already baked into the cake.
Q: What is the "great rotation"?
A: The "great rotation" refers to an investor shift away from growth-focused large caps and into mostly value-oriented small- and mid-caps en masse.
Q: What does the fall in inflation mean for the economy?
A: The fall in inflation could lead to lower interest rates, which could have a positive impact on the economy.
Author: fortune.com
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