(Wednesday Market Open) The report everyone was waiting for this week finally came out with the Consumer Price Index (CPI) coming in lower-than-expected and prompting equity index futures to rally. 

Potential Market Movers

Analysts estimated the CPI would grow 0.2% in July, but the print was 0.0% or no growth. The CPI grew at 8.5% year-over-year (YOY), which was also below the estimate of 8.7%. July Core CPI grew at 0.3% which was below the forecast of 0.5%. Finally, Core CPI grew at 5.9% YOY, which was below the estimate of 6.1%.

Equity index futures rallied on the news with Nasdaq futures climbing 2.31% and the S&P 500 futures rising 1.7% in premarket action. However, both indexes were still butting up against resistance levels. The Cboe Market Volatility Index (VIX) fell 5.33% and is finally trading near 20 suggesting investor confidence is increasing.

The U.S. Dollar Index ($DXY) fell hard on the news, dropping 1.27%. That may not seem like much compared to other assets, but that is big drop in the currency market where most trades are measured in fractions of a cent.

The falling dollar should help multinational companies that have seen their earnings decline due to the exchange rate. Additionally, growth stocks are likely to rise as yields fall helped by more favorable valuations.

With that said, the Producer Price Index (PPI) is still due out tomorrow, and investors can see inflation at the wholesale level, or, in other words, what businesses are paying for raw materials.

In earnings news: before today’s open, Honda Motors (NYSE:HMC) reported lower-than-expected earnings despite topping revenue estimates. However, the company raised its annual earnings forecast, which helped it rise 0.92% in the premarket.

The Wendy’s Company (NASDAQ:WEN) topped earnings despite missing on revenue estimates. However, same-restaurant sales rose 5.6% which was higher than the forecasted 2.8%. Margins shrunk due to higher commodity and labor costs.

After today’s close, Walt Disney (NYSE:DIS) is expected to report earnings and should provide more insights into the streaming business. 

Reviewing the Market Minutes

Stocks moved lower on Tuesday as investors waited for today’s CPI results. The S&P 500® index (SPX) lost 0.42%, the Nasdaq ($COMP) fell 1.19%, and the Dow Jones Industrial Average ($DJI) ticked 0.18% lower.

Moving from chips to gems, Signet Jewelers (NYSE:SIG) also fell 11.7% after issuing its own earnings warning. It also reported it plans to buy the SPAC Blue Nile for $360 million in cash right before Blue Nile was set to go public.

Biotech Novavax (NASDAQ:NVAX) plunged 29.6% after missing on earnings and revenue estimates and offering weaker earrings guidance.

On the upside, Occidental Petroleum (NYSE:OXY) rallied 3.9% on the news that Berkshire Hathaway (NYSE: BRK-A) had purchased more shares, raising its total stake to 18.7%

OXY’s performance boosted the energy sector to the top position of the day. The sector was able to hang on to much of its gains despite WTI crude futures surging higher on the day and then pulling back to settle 0.3% lower.

Three Things to Watch

DIVERGING FROM MERGING: According to data from Wall Street Horizon, M&A activity is slowing down. There were 41 deals closed in May, 33 in June, and 28 in July. Deal activity is likely drying up because companies increasingly want to hang on to cash in preparation for a potential recession.

However, many smaller companies have seen their stock prices plunge over the last seven months and are sitting at much better valuations that could make them takeover targets. Of course, if a recession does occur and the bear market reconvenes, such good values may become clearance items available at bargain-basement prices.  

WINTER IS COMING: According to Bloomberg, Britain is bracing for the possibility of a tough winter that could bring power outages, blackouts, skyrocketing energy prices, gas shortages, and so on. The government’s “doomsday” plan includes capping energy uses per home, potential power cuts for “days,” and the shutting down of railway stations, libraries, and government buildings.

The plan would likely be put into place in January which is usually the time of greatest energy need and when costs are at their highest.

However, sanctions against Russia are blocking access to natural gas and it may be difficult for Britain to get help from its European neighbors. Norway recently announced that it would limit electricity exports to prevent its own blackouts. And France, which normally exports electricity, currently has half of its nuclear power plants running.  

Notable Calendar Items

Aug 12: Michigan Consumer Sentiment

Aug 15: Earnings from James Hardie Industries (NYSE:JHX) and ZipRecruiter (NYSE:ZIP)

Aug 16: Building permits, Housing Starts and earnings from Walmart (NYSE:WMT), Home Depot (NYSE:HD), and TJX Companies (NYSE:TJX)

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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