Higher inflation couldn’t dampen the market’s confidence
Consumer prices in the U.S. increased by 0.4% in August, a touch higher than forecasts, lifting the yearly pace to 2.9%, the highest since January. The details show some stubborn price pressures, though paired with yesterday’s Producer Price Index data (which saw prices dip a little), the overall analysis isn’t alarming. Economists expect the U.S. Federal Reserve’s (the Fed) preferred gauge, the core Personal Consumption Expenditures deflator, to land at around 3% when it’s released later this month. In short: inflation isn’t gone, but it’s not high enough to block the start of a rate-cutting cycle.
Oracle missed expectations across the board in its latest quarter: revenue, earnings per share and even cloud sales. Normally, that would sink a company’s stock price. Instead, shares soared, posting one of the biggest single-day moves ever for a company of its size. The reason wasn’t what the firm earned, but what it promised: a massive spike in revenue expectations, thanks to a few mega-contracts and an almost fantastical growth path for its cloud business over the coming years. The rally briefly took Larry Ellison (Oracle’s co-founder and the company’s largest individual shareholder) past Elon Musk as the world’s richest man, with his fortune swelling by more than $100 billion in a day.
The National Federation of Independent Business’s Small Business Optimism Index rose to 100.8 in August, above its long-term average but shy of forecasts. Business owners became more upbeat on sales prospects and reported less uncertainty around financing. Loan costs dipped to their lowest level since mid-2023, and profit trends improved. Tariff worries are fading too, with fewer firms planning price hikes. However, challenges remain: labour quality still tops the list of headaches, with hiring particularly tough in construction and manufacturing. The report painted a picture of small businesses stabilizing, even as the broader economy cooled.
The stage is set for next week’s Fed decision on a potential interest rate cut. Markets are convinced cuts are coming, the only question being whether Fed Chair Jerome Powell and company move slowly or spring a bigger surprise. Either way, the tone from Washington is likely to steer what’s around the corner for equities.
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