Inflation has been top of mind as monthly snapshots continue to set new decade-level highs; however, bright spots can be found in the recent data.
While headline CPI and Personal Consumption Expenditures (PCE) each rose in their last report, core CPI and PCE growth, which exclude food and energy prices, have recently declined slightly, Kristina Hooper, chief global market strategist for Invesco, wrote in a recent insight.
“And even though last week’s PPI print was higher than expected, there were a few positive takeaways to be found,” Hooper wrote. “Service PPI went up by only 0.4% month over month. And the index for services for intermediate demand was unchanged in June, following seven consecutive advances. These suggest that service sector inflation may moderate in the near future.”
Additionally, longer-term U.S. inflation expectations are reasonably well anchored and becoming slightly better anchored, which arguably could provide the Fed with the cover to not tighten policy so significantly that a recession ensues, according to Hooper.
“We learned last week that five-year ahead inflation expectations, as measured by the University of Michigan survey, fell to 2.8% from 3.1% in the prior month. The New York Fed Survey of Consumer Expectations, which was released early last week, showed similar results,” Hooper wrote. “Like the Michigan Survey, the New York Fed Survey showed an increase in one-year ahead inflation expectations and a decrease in five-year ahead inflation expectations. In addition, it also showed a material decrease in three-year ahead inflation expectations, from 3.9% in May to 3.6% in June.”
According to Hooper, the data suggests that the Fed is unlikely to hike rates by 100 basis points at its next meeting.
While inflation and recession fears have dominated in recent weeks, a new narrative is emerging as investors wonder whether it’s time to start buying up stocks again, citing cheap historical valuations and optimism in recent inflation data.
An equal-weight strategy, such as the Invesco S&P 500 Equal Weight ETF (RSP) or the Invesco ESG S&P 500 Equal Weight ETF (RSPE), can offer exposure to stocks included in the S&P 500 while reducing concentration risk by weighting each constituent company equally so that a small group of companies does not have an outsized impact on the index.
For more news, information, and strategy, visit the Portfolio Strategies Channel.