What a difference a week makes. Last week we saw a significant recovery after a precipitous Monday where the Dow Jones Industrial Average closed over 1,000 points lower. This week the momentum carried markets higher again with the various indices closing up three to five percent. Mark Twain once said, “If you don’t like the weather just wait a few minutes.” It seems this quote applies to markets these days. The mood of investors swung from fears over a recession back to euphoria regarding a soft landing within two weeks. In a nutshell, that is the market these days. The volatility index, which spiked to pandemic levels, receded to a historically low level in the blink of an eye. I’d like to tell you that the uncertainty is behind us, but you all know that isn’t the case. We still have a few months of hand wringing ahead of us.
It’s not that the markets rose in the absence of good news. It now appears that inflation has been contained, while economic growth marches forward. We learned this week that both consumers and producers are feeling a little less pinched by inflation. The Producer Price Index (PPI) edged up only 0.10% m/m in July, which was less than expected according to the Department of Labor. On an annualized basis, PPI rose 2.2% down from 2.7% in June. As for the Consumer Price Index (CPI), it increased 0.20% m/m in July according to the Bureau of Labor Statistics. On a year-over-year basis, both CPI and core CPI, which excludes volatile fuel and energy prices, logged their smallest increase since the spring of 2021. This brings headline inflation under 3% for the first time in a long while.
If inflation wasn’t enough to make you ebullient, then perhaps it is retail sales that will help. Retail sales climbed 1.0% m/m to $709B in July, resurging from a 0.2% slip in June and helped by strong motor vehicle sales, according to the U.S. Census Bureau. Walmart, which released earnings this week, showed strong sales beating on both the top and bottom lines. In its earnings announcement, the company states it does not see a recession on the horizon. Further explaining this rise in retail sales is The University of Michigan Consumer Sentiment Index which rose to 67.8 and exceeded expectations. Overall, expectations strengthened for both personal finances and the five-year economic outlook, which reached its highest level in four months. Resilient consumers are a theme that keeps reappearing. If you are confused by the doom and gloom stories in the mainstream media versus the otherwise good economic data, the truth probably lies somewhere in the middle.
In company news, the big story this week was the announcement that Mars, the candy company, has reached a deal to acquire Kellanova for $36B. You may remember Kellanova was spun off from Kellogg’s in 2023 and contains snack products such as Pringles, Cheez-It, Nutra grain, and Pop-Tarts among others. Perhaps equally intriguing is the move by Chipotle CEO, Brian Niccol, who will take over the reins at Starbucks. What you may not know is that Mr. Niccol is a graduate of our very own Miami University, in Oxford Ohio (Class of 1996). If anyone can reinvigorate the iconic coffee company, it is Mr. Niccol. And lastly, Toyota has been very slow to embrace electric vehicles, instead focusing on hybrids, hydrogen fuel-cell vehicles, and green fuels. This week the company announced it is considering moving to a full EV lineup. What makes this curious is that other major automakers have scaled back EV plans and are reverting to less expensive gasoline-powered cars. I can’t help but wonder if Toyota was late to the game and is now late to the exit. Time will tell.
In closing, I noticed something a few weeks ago that had me scratching my head. I am beginning to see Halloween merchandise hit store shelves. Traditionally, Starbucks kicked off the fall season with the return of its pumpkin spice latte in late August. Even that has sparked a debate or two. Now we have a new term to wrestle with… Summerween. If these companies are to be believed, it is customer demand that is driving these initiatives. Among the companies pushing Halloween early are Home Depot, Costco, Target, and Lowe’s, the latter two beginning in July! While I enjoy the holidays, I prefer to enjoy them one at a time in their season. In the early 1900s, Christmas shopping was done a few days before Christmas. Over time this has shifted in no small part because retailers now rely on holiday shopping for up to 30% of their annual sales. It seems that consumerism has no limits. Now you know.