Is Inflation Being Over Hyped?


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Key Takeaways

  • Jobs Number Misses But Economic Data Stays Strong
  • Gold Signaling Less Concern About Inflation
  • Twitter Being Pulled At By Threads

Markets had their worst day since early May on Thursday. The S&P 500 and Nasdaq Composite both fell 0.8% with all sectors of the S&P 500 closing in the red. The catalyst for the pullback was a stronger than expected reading on the economy. Those numbers were followed up by this morning’s June employment report which showed 209 thousand new jobs added; slightly below estimates and the first miss in 15 years for non-farm payrolls. The unemployment rate ticked down slightly to 3.6% from 3.7% in May. Taken in total, this all but guarantee a rise in interest rates when the Fed meets in late July.

One of the more interesting aspects of what we’re seeing right now is how this market is being perceived. So much of the focus and attention has been and remains to be on interest rates. Lost in the shuffle; however, is the continued strength and resilience of equity prices. Yesterday notwithstanding, stocks have largely shrugged off the interest rate narrative and instead appear more focused on the fact that this is a very strong economy. I would also argue that gold furthers my thesis.

Gold is on track for its fourth consecutive week of losses. Normally, in a rising interest rate environment, you would expect to see gold prices increasing as a hedge against higher rates. The fact that gold is falling suggests to me that while inflation is continuing, it’s doing so at a contained pace. Stated differently, markets are making the case that the Fed has inflation contained and while it may not be coming down dramatically, it has stabilized.

If there is a potential Achilles Heel in this market, I think most observers would agree it is the concentration of just a handful of stocks leading us higher. However, our own data here at tastytrade is showing our customers beginning to nibble on stocks in other sectors like energy. If investors are broadening out into other sectors, that would undoubtedly be good for the market as a whole and it makes a strong case for the path of least resistance being higher at the moment.

Taking a look at some individual stocks, shares of Tesla
are basically unchanged in premarket. However, sales of electric vehicles (EV) overall in the first half of the year were up 50% vs. just 10% for combustible engines. The increase in EV sales, while strong, is down from full year 2022 where EV sales increased 65%. Tesla, which own 60% of the EV market, is the clear winner here and I believe they have largely solidified their place in the wake of other EV manufacturers agreeing to use Tesla charging protocols.

Elsewhere, shares of Facebook parent, Meta, were down slightly on Thursday. Late Wednesday night the company launched their Twitter competitor, Threads. It’s estimated that 30 million users signed up for Threads in the first 24 hours. While that number is less than 10% of Twitter’s average daily users, it is the first serious threat we’ve seen to Twitter thus far. Shares of Meta are up 138% year-to-date.

Another company worth mentioning is Samsung. The company announced they are expecting a 96% drop in profits as chip demand for personal computers and cell phones has dropped. An interesting aspect to this story is how Samsung might end up the beneficiary of the heated trade war between the U.S. and China. Samsung is a South Korean based company that isn’t affected by U.S. restrictions on advanced chip sales to China. Should the trade war continue to escalate, we could see China pivot from American chip manufacturers to Samsung. This is a story I think is worth watching.

Finally, next week will kick of earnings season. Banks will begin reporting on Friday. I’m very interested to see how they have fared in the last quarter. Normally, higher interest rates are a good thing for banks as they lend out at higher rates in the long term while borrowing at lower rates in the short term. However, when the yield curve is inverted, like it is now, those longer term loans are at rates lower than what it costs to finance those loans. Therefore, it could be a choppy earnings season for financials. As always, I would stick with your investing plans and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.

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Nicole Lambert
Nicole Lambert
Nicole Lamber is a news writer for LinkDaddy News. She writes about arts, entertainment, lifestyle, and home news. Nicole has been a journalist for years and loves to write about what's going on in the world.

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