Consumer prices fell in June\u2014the first time in 23 months\u2014thanks to weaker energy costs and discounting across several categories. This morning\u2019s Consumer Price Index (CPI) reflected a 0.1% month-over-month (m\/m) decrease and a 3.0% year-over-year (y\/y) increase, much lighter than expectations of 0.1% and 3.1% upticks, respectively, and May\u2019s 0% m\/m and 3.3% y\/y results. The core CPI, which excludes food and energy due to their volatile characteristics, also decelerated but remained positive, growing 0.1% m\/m and 3.3% y\/y, slower than median estimates of 0.2% and 3.4%, which would\u2019ve been unchanged from the prior period.<\/p>\n\n\n\n Past performance is not indicative of future results<\/p>\n\n\n\n Last month\u2019s deflation was led by gasoline, which experienced a 3.7% price drop. Other decliners and the rate of their deflation were as follows:<\/p>\n\n\n\n Meanwhile, other categories saw charges rise modestly, with dining establishments leading, posting a 0.4% gain. Other components and their increases included the following:<\/p>\n\n\n\n Shelter, which comprises the largest portion of CPI, decelerated meaningfully from 0.4% in May and was responsible for the downside beat.<\/p>\n\n\n\n The labor market bucked a recent loosening trend with unemployment claims declining during the past two weeks. Initial claims dropped to 222,000 during the seven-day period ended July 6, beneath the median projection of 236,000 and the previous period\u2019s 239,000. Continuing claims fell to 1.852 million for the week ended June 29, lower than the anticipated 1.860 million and the preceding week\u2019s 1.856 million. While the current economic cycle is certainly pointing to decelerating employment developments, the four-week moving averages shifted in bifurcated fashion. The four-week moving average for initial claims changed from 238,750 to 233,500 while continuing claims grew from 1.831 million to 1.840 million during their respective periods.<\/p>\n\n\n\n Past performance is not indicative of future results<\/p>\n\n\n\n Consumer spending fell short of expectations for a handful of companies that reported this morning, but Delta Air Lines was an exception with record-high revenue for the recent quarter. In the industrial sector, WD-40 Company produced strong sales growth across its global markets. Those are a few takeaways from the following earnings reports:<\/p>\n\n\n\n Markets are generally risk-off this session with investors trimming all of the magnificent seven while favoring other securities, namely small-caps, real estate, utilities, industrials and Treasurys. Leading major US equity benchmarks are the Russell 2000 and Dow Jones Industrials, which are gaining 3.3% and 0.3%. Meanwhile, the year-to-date winners, the Nasdaq Composite and S&P 500 indices, are down 1.7% and 0.8%. Sector breadth is positive despite the market darlings getting obliterated; seven out of eleven sectors are gaining on the session. Rates are tanking with the 2- and 10-year Treasury maturities changing hands at 4.49% and 4.17%, 13 and 12 basis points (bps) lower on the session. Softer borrowing costs, firmer Fed easing expectations and dimming economic prospects are weighing on the greenback, with the Dollar Index down 56 bps as the US currency loses ground relative to all of its major counterparts except for the yuan. It\u2019s depreciating versus the euro, pound sterling, yen, and Aussie and Canadian dollars. Major commodities ex-copper are moving higher on a loftier demand outlook and risk-off positioning, with lumber, silver, gold and crude oil higher by 8.3%, 2.3%, 2% and 0.2%. Copper is lower by 1.6%. <\/p>\n\n\n\n Today\u2019s trading action and earnings results may be sparking a shifting tide in markets. The initial reaction to the CPI was firmly bullish until the formal opening took place at 9:30 am ET and the selling pressure began. Investors are concerned that deflation will pressure the top-line and compress margins, leading to a reversal in the recent rise in earnings expectations from $250 to $259. Against the backdrop, this year\u2019s sharp lift in stock valuations will face a significant recalibration if profit growth isn\u2019t in the nosebleeds. At this juncture, it appears that income projections are unreasonable and need to get cut. At these altitudes, though, will investors cheer rate reductions in light of deteriorating earnings prospects? I don\u2019t think so. <\/p>\n\n\n\n![\"CPI\"](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/07\/CPI-7-11-24.png\")
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Labor Market Easing Pauses<\/strong><\/h2>\n\n\n\n
![\"Unemployment](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/07\/Unemployment-Rate-7-11-24.png\")
<\/figure>\n\n\n\nHouseholds Continue to Travel but Shop for Grocery Bargains<\/strong><\/h2>\n\n\n\n
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Magnificent Seven Fall Out of Favor<\/strong><\/h2>\n\n\n\n
Pressure Mounts on Corporate Earnings<\/strong><\/h2>\n\n\n\n