Wall Street on Friday notched a marginal loss for the week, but during the week, the S&P 500 achieved the 19th and 20th record close this year. Nvidia, the world’s largest chipmaker, highlighted the week with its quarterly report. Despite its results indicating that the artificial intelligence spending boom was still accelerating, the company missed on data center revenue, provided conservative revenue guidance and indicated no further sales of AI chips to China. Other chip bellwethers, such as Marvell Technology, also failed to impress with their earnings.
Economic data released this week reflected a 3.3% growth in US GDP with the core personal consumption expenditures (PCE) price index—widely seen as the Fed’s preferred inflation gauge—coming in line for July. The Fed’s preferred inflation gauge climbed at an annual rate of 2.6 percent in July. But, a core metric that strips out volatile food and energy costs showed that inflation inched up to 2.9 percent — marking the third straight month of acceleration. Despite rising inflation, it is widely expected that the softer labor market momentum, slowing income growth, and cooling consumer spending will force the Fed to cut rates in September.
For the week, the S&P 500 slipped 0.1%. The Dow and the Nasdaq both fell 0.2% each.
Future Wealth’s View
Amidst the GDP, inflation, rate cut discussions and firing of the Fed Governer this week, the most important tariff news was largely missed. U.S. imports of packages worth less than $800 will no longer be tariff free as of Friday as the Trump administration formally ended the “de minimis” exemption. It all means that Americans will need to be more careful about where they order from and will need to pay attention to final prices when purchasing goods online be it from Amazon or Shein or any other online store. Currently, “de minimis” shipments account for 92% of all cargo entering the U.S.
We believe inflation could be headed back into the 3 – 4 percent range over the next 6-12 months. A cut in interest rates by the Fed is really an effort to prevent further deterioration in consumer spending and rising unemployment. For a healthy functioning economy, the Fed would like inflation to be at 2% and unemployment at 4%. But, with unemployment headed toward 4.5%, the Fed has little choice but to cut interest rates and risk inflation shooting past 3%.
The erratic way Trump has imposed the tariffs — announcing and suspending them, then coming up with new ones — has left businesses and the Fed bewildered and uncertain about investments and economic decisions. Wall Street is shrugging off these concerns for now but the day of reckoning is not too far off.