Stock Market Gains on Strong Half-Year Performance, Inflation Data Influences Interest Rate Expectations, and Oil Prices Rise on Cautious Fed Approach

Market Analysis 02 Aug 2021

Stock Market Gains on Strong Half-Year Performance, Inflation Data Influences Interest Rate Expectations, and Oil Prices Rise on Cautious Fed Approach

The stock market edged higher hours before the Friday trading session closed. The S&P 500 benchmark jumps by 1.38% to 4.457.80 basis points, remaining above the bull market level. The index’s gains were driven by the news that dictates that the S&P 500 is heading to score its biggest half-year gains for the first time since 2021.

The Nasdaq composite was up by 1.57% to 13.803.44 market points. The indexes were boosted by Apple’s gains. Moving to the technology sector, individual stocks such as Apple, Tesla, Meta, and Netflix posted an average 2% jump in their share prices this week.

In turn, this boosted cryptocurrency prices.

The Dow Jones industrial average, in turn, covered its last session’s losses by roughly adding 0.98% to a total of 34.439.70 market points.

Meanwhile, the personal consumption expenditures price index (PCE), which is the Federal Reserve’s preferred measure of inflation, rose by 0.1% last month. This increase was significantly below expectations, which had predicted a rise of 0.6%, and it was also lower than the 0.4% increase observed in the previous month. Additionally, over the 12-month period leading up to May, the PCE showed a rise of 3.8%, falling short of economists’ forecasts of 4.6%.

If the data suggest one thing, it will be that inflation is cooling down more than expected. This, in turn, will encourage the Federal Reserve to raise interest rates at least twice for the rest of this year.

According to last week’s collected data, market experts are more than 70% positive that the July interest rate hike will be a quarter basis point.

Still, the slower pace of inflation as reflected in the PCE index may not be enough to dissuade the Federal Reserve from pursuing interest rate hikes in the near future. The decision will likely depend on the upcoming inflation data and job market indicators, which could influence the central bank’s monetary policy actions.

Moving to the oil market, the market experienced a more than 1% increase on Friday. This upward movement was influenced by the release of softer U.S. inflation data, which implied that the Federal Reserve may adopt a more cautious approach in its efforts to address rising prices by implementing interest rate hikes. This news alleviated concerns about aggressive monetary tightening measures that could potentially limit economic growth.

The West Texas Intermediate added 1% to a market price of $70 a barrel, the highest level in the past two weeks. Brent crude oil jumped by 1.17% to $75.33 a barrel, and natural gas prices skyrocketed by more than 3% Hours before the end of today’s session.

Overall, The current outlook for crude demand appears excessively pessimistic, as both the US and Chinese economic outlooks are expected to remain positive. Although China may initially opt for cheaper Russian crude, their demand is projected to increase in the future, especially with ongoing economic stimulus measures. The crucial factor for the oil market will be Saudi Arabia’s stance on maintaining market tightness through extensions or deeper production cuts.

Written by Editor

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