July's inflation reading is a critical moment for markets and the economy

Good morning and happy CPI day, markets enthusiasts. Max Adams filling in for Phil Rosen today. We’ve got a big economic data point headed our way this morning and markets are bracing for impact. 

After June’s Consumer Price Index reading of 9.1% — the fastest increase in 41 years —  there’s been a chorus of commentators saying that inflation has surely peaked and that we’re headed lower from here.  

But not everyone is so sure and there’s a lot to keep in mind in this discussion. 

So let’s get right into it. 

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The drop in commodities has raised hopes that inflation will start to cool.

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1. Today’s inflation reading is a critical moment for markets and the economy. June’s reading of 9.1% was jarring, and in the month since,  a number of top commentators have said that prices will fall from here. 

But not everyone is convinced. About 50% of investors surveyed by investment management giant State Street say that inflation has yet to peak, and that rising prices are keeping them up at night. Investors are so shaken, that about two thirds say they expect their current investments to lose value.

Economists surveyed by Bloomberg are expecting year-over-year CPI to show inflation increased by 8.7% in July, down slightly from June’s figure. Wells Fargo, for its part this week said that it expects inflation to fall to 5% by October, driven lower by falling gas prices. But even then, higher housing costs will prevent prices from falling much further.

And then there is the dreaded “S” word. According to the world’s largest asset manager, markets are headed for a period of stagflation and investors need to defend their portfolios from low growth and persistent inflation. Low-volatility stocks and fixed income are ways to do this, BlackRock said Tuesday. 

Meanwhile, in an op-ed, Nouriel Roubini this week wrote that the era of stagflation is upon us and central banks have set a trap for themselves. 

“During the Great Stagflation, both components of any traditional asset portfolio — long-term bonds and US and global equities — will suffer, potentially incurring massive losses,” Roubini said. 

In other news:

Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System testifies before the House Committee on Financial Services June 23, 2022 in Washington, DC

Win McNamee/Getty Images

2. US stock futures rise early Wednesday, as investors brace for the key US inflation data. Meanwhile, oil prices have tumbled almost 30% in two months. Here are the latest market moves.

3. On the docket: Nio Inc., The Walt Disney Company, Bumble Inc., all reporting.

4. Bank of America has a list of consumer discretionary stocks set to outperform before possible rate cuts by the Fed. The US central bank may not yet be done tightening, but that day will arrive in 2023. Here are seven stocks to own before that date. 

5. Elon Musk sold almost $6.9 billion worth of Tesla shares ahead of a court fight with Twitter. Musk said he could need the funds if he loses the legal battle and is forced to buy the social media platform for $44 billion. Musk, who is now left with a 15% stake in the electric car maker, explained his action in a late tweet Tuesday

6. Investors should pare stocks and buy commodities. JPMorgan’s Marco Kolanovic wrote Tuesday that recent gains in the stock market and toned down recession expectations mean commodities are attractively valued — but the quant guru is still bullish on stocks long-term.

7. The stock market has misread signals from the Fed. That’s according to research firm TS Lombard, which says the Fed funds rate could hit 4% by the end of the year. The firm says investors should expect another 75 basis point rate hike in September.

8. The CEO of a national homebuilder says 2023 could see a much more normal housing market. Tri Pointe Homes is a $2 billion builder doing business across the US. Read why its chief executive, Doug Bauer, thinks the market is headed back toward “equilibrium.”

9. A fund manager who’s beaten 99% of peers over the past year shares his top energy picks. Stan Majcher says the energy sector remains attractive as global energy supplies will be tight for some time. Here are his top three picks from the industry that he says are overlooked. 

Lumber prices, August 8, 2022

Markets Insider

10. Lumber has gained nearly 20% in two days. It’s a big reversal for the commodity, which has tumbled in 2022 as the housing market cools off. According to one CEO, US housing is on track to stick a soft landing.

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Curated by Max Adams in New York. (Feedback or tips? madams@insider.com)

Edited by Hallam Bullock (@hallam_bullock) in London.

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