Higher Prices, But Slowing Inflation

Also, Amazon's Prime Day and Microsoft's Activision Acquisition

• The CPI report might do little to change interest rate forecasts for this month or September.
• Deloitte forecasts a drop in back-to-school spending.
• The FTC loses its bid to block Microsoft’s bid to acquire Activision Blizzard.

On Tuesday, stocks edged higher with the S&P 500 (SPX) adding 0.7% and the Nasdaq Composite (IXIC) up by 0.6%. Energy stocks led the way, buoyed by oil prices. Crude oil, which has been trading within a range, was up 2.5% to $74.83 per barrel and is indicated slightly higher in premarket trading.

Today, however, investors will focus on inflation and the consumer price index (CPI) report. For the month of June, core CPI increased 0.2%, compared with May and 4.8% compared with a year ago. This is in comparison with expectations of an increase of 0.3% month-over-month and 5% on a year-over-year basis.

Before the release of the CPI report this morning, it was a foregone conclusion that the Fed would raise rates later this month by a quarter of a percentage point. However, expectations for the September meeting overwhelmingly had interest rates remaining unchanged. Today’s weaker than expected report will likely do little to alter interest rate forecasts for this month or September. The report also seems to further support my belief that while inflation continues, it is being contained.

Eyes on Prime Day

Elsewhere, today marks the second and final day of Amazon’s (AMZN) annual Prime Day sale. Prime Day has lost some of its luster in recent years. In fact, revenue growth generated from the two-day sales hasn't exceeded 10% in two years. However, this year the company is projected to post an 11% increase and as of Tuesday afternoon, the average order size had increased nearly 8% from last year. This is particularly intriguing when juxtaposed against a report this morning from Deloitte regarding consumer spending.

Deloitte is forecasting a 10% drop in back-to-school spending this year. The report cites inflation and worsening personal financial conditions as the primary reasons for the drop. Back-to-school shopping is often seen as a precursor for holiday spending. Therefore, I’m closely watching to see how Prime Day performs and if it changes perceptions for back-to-school shopping and subsequently, forecasts for holiday shopping.

Microsoft scores in court

Another significant story on Tuesday was the ruling in Microsoft’s (MSFT) bid to acquire Activision Blizzard (ATVI). The Federal Trade Commission (FTC) sought to block the proposed $75B merger. U.S. District Court Judge Jacqueline Scott Corley ruled Tuesday that the FTC had failed to make their case that the merger would harm competition.

The FTC had spent an extraordinary amount of time and money seeking to block the deal and the ruling was seen as a major blow to the FTC. However, there is word this morning that the FTC may seek to file an appeal in the case as early as today.

Lastly, tomorrow morning Delta Airlines (DAL) and PepsiCo (PEP) will announce earnings and then on Friday morning, banks will begin reporting. Currently, it’s estimated that corporate earnings will be down a little over 7% from a year ago.

Given the meteoric rise in equity prices, especially in the tech sector, I’m very interested to see not only how companies performed in the second quarter, but also what they have to say regarding the rest of this year. Most analysts and market watchers have been caught off guard by rising equity prices in the face of rising interest rates. Many of those analysts have also been calling for a recession that has yet to materialize. Therefore, second-half forecasts issued by these companies are something to which I’ll be paying close attention. As always, I would stick with your investment plans and long-term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.

JJ Kinahan is the CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee.

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