Inflation Dips to 2.9% in July: Stock Market Surges, Federal Reserve Expected to Cut Rates
This week saw positive macro news as the Consumer Price Index (CPI) report revealed a 2.9% annualized inflation rate for July, the lowest since March 2021. Monthly consumer prices decreased by 0.1% from June, but still rose at a 0.2% rate, indicating a slower pace of increase. The stock market reacted positively to the news, with both Dow Jones Industrial Average (up 6.24%) and S&P 500 (up 4.65%) rallying over the week.
The market is now anticipating that the Federal Reserve will begin cutting the fund rate, currently set at 5.25% – 5.50%. With inflation easing, the market has factored in approximately 125 basis points in rate cuts, projecting a range of 4% – 4.25% by year-end. This adjustment could alleviate pressure on consumers and businesses in a debt-driven economy.
One company that could benefit from a rate cut is Prologis Inc (NYSE: PLD). As a logistics realtor with a significant presence in the retail and e-commerce sectors, Prologis stands to gain from lower borrowing costs. Another potential winner is Wayfair Inc (NYSE: W), an e-commerce business specializing in home decor and furniture, which could see renewed growth as financial conditions loosen.
In addition, Block Inc (formerly Square) (NYSE: SQ) could capitalize on the changing landscape with its fintech solutions for businesses and consumers. The company’s recent acquisition of Afterpay for its buy now, pay later service could drive sales and revenue growth.
While the beginning of an interest rate cutting cycle often signals a looming recession, these companies are poised to weather the storm and potentially see growth in the coming months. As investors navigate the changing economic landscape, keeping an eye on these potential winners could prove beneficial for their portfolios.