Market update: Inflation could ease, but high prices are hurting demand

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It was a volatile week for the broader market, ending Friday with its biggest one-day loss since mid-June. The decline came on the heels of comments by Federal Reserve Chairman Jerome Powell that the central bank must stay on course to keep raising interest rates until inflation subsides.

Ten of 11 industrial sectors fell during the week, with technology and communications stocks falling the most. Only energy stocks benefited from the rise in oil prices.

ADR-listed Chinese stocks topped the list of best performers after news that the United States and China reached an agreement on audit procedures. Meanwhile, disappointing earnings results and reports of weakening consumer demand from the companies sent shares of various retailers and software companies tumbling.

Inflation concerns eased somewhat on the latest data from the Personal Consumption Expenditure Index, the Fed’s preferred measure of inflation. In July, prices fell 0.1 for a year-over-year change of 6.3%, down from 6.8% in June. The PCE data follows what the July Consumer Price Index report showed earlier this month.

The latest jobs data is expected to be released on September 2, along with the August jobs report. Employment remained strong despite fears of economic uncertainty among investors and businesses. July brought a surprise increase of 528,000 jobs, the largest since February.

Economists forecast an increase of 290,000 jobs in August, according to FactSet. Unemployment is expected to remain unchanged at 3.5%.

Events scheduled for the coming week include:

  • Tuesday: best buy (ABY)resume (HPQ)and CrowdStrike Holdings (CRWD) report earnings.
  • Wednesday: Okta (OKTA) and MongoDB (MDB) report earnings.
  • Thursday: Broadcom (AVGO) brings income.
  • Friday: August jobs report.

For the trading week ended August 26:

  • The Morningstar US Market Index fell 3.87%.
  • The best performing sector was energy, up 4.15%; all other sectors were down for the week.
  • The worst performing sectors were Technology, down 5.23%, and Communication Services, down 4.52%.
  • Yields on the 10-year US Treasury rose from 2.98% to 3.04%.
  • WTI crude oil prices rose 2.52% to $93.06 a barrel.
  • Of the 861 U.S.-listed companies covered by Morningstar, 146, or 17%, were up and 715, 83%, were down.

Which stocks are rising?

The best performing stocks last week were Farfetch (FTCH)NLP training (TAL)Snowflake (SNOW)Pinduo-duo (PDD)and New Eastern Education and Technology (EDU).

ADR-listed Chinese stocks were among the best performers after news that regulators in the United States and China had reached an agreement on audit procedures. Investors had sold Chinese companies last year, fearing the shares could be delisted due to a stalemate allowing US regulators to inspect China-based audits, The Wall Street Journal reported.

Following the announcement of the transaction, shares of Tal Education, Pinduoduo and New Oriental Education & Technology rallied.

Fertilizer Producers The Mosaic Company (MOS) and CF Industries Holdings (CF) closed the week higher, as did lithium producers Sociedad Quimica Y Minera De Chile (m²) and Livent (LTHM).

Chart showing the five-day price changes for stocks advancing this week.

Which stocks are down?

The worst performing stocks of the week were Nordstrom (JWN)Zoom Video Communications (ZM)dollar tree (LTRD)Heavenly Hain (HAIN)and Advanced auto parts (PAA).

Chart showing the five stocks with the biggest declines for the week.

Disappointing earnings news was a common theme among underperformers. Nordstrom fell the most among U.S.-listed stocks in Morningstar’s coverage universe after the clothing retailer slashed its second-half forecast. The company also noted weaker sales of Nordstrom Rack, which targets low-income consumers who are more susceptible to inflationary pressures.

Stocks of technology companies Zoom Video Communications and Splunk (SPLK) also fell following disappointing results. Dollar Tree and Advance Auto Parts declined after cutting their outlook.

Chart showing five-day price changes for stocks that have fallen this week.

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