Markets look to finish the week higher on the back of moderating inflation expectations and the potential for an interest rate cut in September. There is still a considerable amount of uncertainty regarding inflation or perhaps even stagflation in the months ahead, but investors this week continued to believe we are closer to a rate cut than at any point this year. Investors put the odds at 95% for a rate cut in September. As for what else happened this week, there is a lot to cover.
Starting with the elephant in the room, the July Consumer Price Index (CPI) showed prices rose 2.7%, largely in line with what economists had predicted. The lack of a spike in prices suggests that companies have so far mostly avoided passing the brunt of the tariffs onto consumers, which takes some of the pressure off the Federal Reserve. Coupled with a weak jobs report last week, especially considering the downward revisions in May and June, the potential for an interest rate cut has gone up significantly. However, it isn’t clear sailing from here. On Thursday we learned that the July Producer Price Index (PPI), rose with “wholesale inflation” increasing 0.9% last month versus 0.2% expected. Investors are still overwhelmingly optimistic that a rate cut is coming. Markets reacted accordingly and several new highs were reached. In company news, there is so much to cover that it may be simpler to give you the headlines.
- Nvidia and AMD can resume AI chip exports to China – This is great news for the chipmakers, questionable news for national security, and perhaps constitutionally uncertain. The catch is that the U.S. government will receive 15% of revenue from the chip sales in China in return for the export license.
- In a leaked report, it appears that the U.S. government is considering taking a stake in Intel. The company has been struggling lately (some would argue for decades), and a chip production plant being built outside of Columbus, Ohio, has been tentatively stopped. With backing from the U.S. government, it appears the Ohio plant could be back in play.
- This one may upset some of you. In a recent release, AOL announced it will be discontinuing its dial-up internet service. The final goodbye is scheduled for September 30.
- Google has a suitor for its Chrome browser. This week a company called Perplexity, in an unsolicited bid, offered Google $34.5 billion for its web browser. Google has come under increasing pressure to divest parts of its business as competitors cite monopolistic practices. While this may seem outlandish, a judge last year ruled against the company and is currently deciding on an appropriate remedy.
- In more sobering news, Spirit Airlines reported it doubts it can stay in business much longer. The ultra-low-cost airline known for its barebones flying experience has “substantial doubts” it can continue to operate over the next 12 months.
- And perhaps not surprising, Kodak is once again in the news as it doubts its ability to survive the digital age. The company warned it does not have enough money to pay debt coming due in the next 12 months. “These conditions raise substantial doubt about Kodak’s ability to continue,” Kodak said in its filing.
In closing, have you ever wondered where the phrase “the dog days of summer” comes from? I hadn’t until this week when I came across a short article on the topic. According to the Farmer’s Almanac, the phrase originated in Ancient Roman times. The Romans noticed that the star called Sirius, the Dog Star, was in conjunction with the Sun in late July. They believed the Dog Star’s brightness made things hotter on Earth during the late summer months. So, they named this period “dies caniculares”, or “days of the dog star,” which was later shortened to “dog days.” Now you know.
Bruce J. Mason, MBA
