Investors React to Mixed Signals

Stocks rose last week despite mixed signals on inflation as investors kept one eye on the Fed’s September meeting.

The Standard & Poor’s 500 Index advanced 0.94 percent, while the Nasdaq Composite Index added 0.81 percent. The Dow Jones Industrial Average rose 1.74 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, increased 2.16 percent.^1,2

Third Gain in Four Weeks

Stocks posted modest losses to start the week as investors braced for July consumer inflation reports. The White House’s executive order on Monday extending the tariff deadline for China by 90 days failed to move markets in the other direction.³

Stocks then staged a two-day rally following the latest Consumer Price Index (CPI) report, which showed July inflation held steady over the prior month—beating expectations. The inflation news led some investors to move into small-cap stocks, with the Russell 2000 Index of small-cap stocks rising 5 percent over Tuesday and Wednesday.⁴

However, markets slipped Thursday as investors dug into the Producer Price Index (PPI) for July, which showed wholesale inflation hit a 3-year high last month; this was the third weekly gain in the past four weeks for each of the three major averages; the S&P and Nasdaq advanced four of the last five weeks.^5,6,7