At the end of trading on Tuesday, the Nasdaq composite had increased by 2.43% and the Dow Jones average by 408 points.
Likewise, another popular metric of stock market performance, the S&P 500 index, experienced gains of 1.68%. The broad market now looks promising but is 5% short of its July 2024 record high.
Inflation Lightens Up Back of Stock Market Gains
On the other hand, several economic indices suggest that national inflation is receding and the economy is stabilizing. For example, the producer price index (PPI), which measures wholesale prices, increased by 0.1% over the previous month.
Consequently, the PPI has made investors hopeful that the consumer price index (CPI) will also show signs of increase by Wednesday morning. There is widespread anticipation that the CPI will go up by 0.2% in contrast to its 0.1% decline in July.
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Panic Sale of Shares End in Losses
David Russell, head of market strategy at TradeStation, said of Tuesday’s economic developments, “Today’s PPI data gives further evidence that the tide has turned on inflation, especially in services.”
Unfortunately, it may not be all good news for investors who recently embarked on massive stock dumps. The move would have been profitable for them if the stock market indices and prices kept dropping.
Nasdaq, Dow, and S&P 500 Rebound After Decline
The sudden decline of stock market metrics on August 5 gave several investors the shivers. However, since that significant drop, the S&P 500 has rebounded by 4.2%.
Stock market volatility has also reduced since that first-week shocker. The Cboe Volatility Index (VIX) oscillated at 20 during the close of trading on Tuesday, compared to its lofty climb to 65 the previous week.
Some Outliers Suffered Losses Despite General Market Gains
Despite this general recovery in the stock market, Chipotle shares took a beating after news broke that its current CEO, Brian Niccol, was abandoning the company to accept an offer to run the show at Starbucks. At the close of trading, Chipotle shares had dropped by 7.5%.
Starbucks shares, on the other hand, gained a whopping 24.5%. This is a typical example of how investors’ sentiments affect a company’s economic fate.
Stock Market Review for August 13
The following is a summarized narration of what happened on the stock market before trading closed on Tuesday. Trading closed at 4 pm, and moods were high among investors and traders as the Dow went 400 points higher.
According to Goldman Sachs, it is safe to dispel any recession fears that may have arisen from last week’s frenzied stock sell-offs.
Goldman Sachs Reassures Clients
In a note, strategist Guillaume Jaisson said to reassure Goldman Sachs clients that the US economy is not headed for a recession: “Cyclical stocks have underperformed during the correction, but the US equity market does not appear to be pricing a recession.”
Despite signs of economic slowdown in China and Europe, Goldman Sachs assures its clients that the US stock market will hold steady.
Long Road to Federal Reserve’s Rates Target
According to Barry Bannister, chief equity strategist at Stifel, the Federal Reserve’s goal of steadying annualized inflation at 2% is a wild goose chase.
During a recent interview, Banister said, “When I look at everything, I think 2% for the Fed on an inflation goal is just a pipe dream. The market, on the break-evens, will eventually adjust to that. And we’ll have to add some term premiums.”
What Did the Stock Market Do Today Live?
Summarily, the stock market saw significant gains on August 13 across multiple market metrics.
Some heavyweights made their big trading moves at midday. For example, HomeDepot gained 2% after a recent sales decline of 4%. Dell Technologies also got a 6% boost in value after Barclays intervened to upgrade the company’s shares to equal weight from underweight.
What Caused the Dow To Drop 1000 Points?
On Monday, August 5, the stock market experienced a seismic shock as all market indices plunged. The Dow dropped by 1000 points, the S&P 500 by 3%, and the Nasdaq composite by 3.4%.
Wall Street analysts suggest the decline is a product of investors’ fear that the US stock market would also buck, as major stock markets like those of Japan, Europe, and China took a record plunge that same day.
What Is the Inflation-Adjusted Return of the Nasdaq?
The inflation-adjusted return gives investors an idea of the returns on their stock market investments. All an investor needs to do is calculate the nominal return on a particular security and deduct the current product of the inflation rate.
As of Monday, August 12, the inflation-adjusted return of the Nasdaq 100 Index Price stood at 18542.03. The all-time high of this index price is 20676.7, and its record low is 309.8.
ALSO READ: Economists Say That Biden and Trump Are Not Largely To Blame for High Inflation Rate
Does Inflation Affect Stock Returns?
Yes, inflation does affect the stock market, but the interplay is quite complex—way too complex to be explained away. However, the basic idea is that most investment estimates are based on inflation rates of between 1% and 3%. This keeps the value of the dollar and the national demand for goods steady.
However, when the inflation rate rises, the stock market becomes unpredictable as consumer spending drops, and economic growth and investment returns tank.
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