Monthly Market Commentary
- Aug 4
- 4 min read
By: Marc Lowe CFP®
As we head towards the midterms, let's not forget that the stock market is a forward-looking, cold-blooded machine weighing in all information available to the public. If it's in the headlines, it is already priced into stock prices. What is the elephant in the room that has everyone so worried?
Inflation. Inflation... Inflation.
That's all I see when I turn on the news. Headlines about inflation and oil prices.
But if everyone is focused on inflation, it has very little surprise power for the market, in my opinion.
The more dangerous consequence of inflation is the long-term impact on what folks can buy with their money. The deterioration of their buying power.
Will this inflation linger around for years or even decades? It's possible. No one knows for sure.
Inflationary cycles are typically very long. Essentially, when inflation lingers around, it lingers around for a long time. We saw this in the 60's and 70's. As we continue to monitor what happens here with inflation, it's important to think about your personal strategy to control what you can control when it comes to inflation.
As we look back at June, we have had a slight cool-off in inflation. Consumer prices fell 0.4% during the month, marking the largest monthly decline in headline inflation since April 2020.
While that's certainly welcome, the story behind the numbers is more complicated than the headline suggests.
Much of the decline was driven by lower energy prices following a temporary easing of tensions in the Middle East. Unfortunately, those geopolitical tensions have already resurfaced, raising questions about whether this inflation relief will last.
For retirees and those approaching retirement, understanding what's really driving inflation is far more important than reacting to a single month's data.
Inflation Finally Moved Lower
Headline Consumer Price Index (CPI) inflation slowed to 3.5% year over year, down from 4.2% in May.
The biggest contributor was a 5.7% decline in energy prices, the first meaningful drop since January.
Even more encouraging was what happened beneath the surface.
Core inflation—which excludes the more volatile food and energy categories—was flat during June and increased only 2.6% over the past year, compared to 2.9% in May. Service inflation also showed signs of cooling.
This matters because core inflation often provides a better picture of longer-term pricing trends than headline inflation alone.
The Labor Market Is Beginning to Slow
Inflation wasn't the only economic report that caught investors' attention.
Employers added just 57,000 new jobs in June, far below expectations of approximately 115,000. Previous months were also revised lower.
Although the unemployment rate dipped to 4.2%, that improvement came largely because fewer people were participating in the labor force rather than because hiring accelerated.
At the same time, estimated second-quarter economic growth has slowed significantly, with forecasts suggesting GDP growth around 1.2%, compared to estimates near 3% just one month earlier.
Taken together, these numbers suggest the economy is gradually losing momentum.
What Does This Mean for Interest Rates?
The Federal Reserve held interest rates steady during its June meeting.
Lower inflation generally reduces pressure for additional rate increases, but the outlook remains uncertain.
Markets continue to expect the possibility of additional rate hikes later this year, particularly if inflation begins rising again because of higher energy prices.
Adding another layer of uncertainty, new Federal Reserve Chair Kevin Warsh has indicated he intends to provide less forward guidance than previous Fed leaders, making future policy decisions more difficult for investors to predict.
Chart of the Month: Oil Prices Fell—But Volatility Remains
Although oil prices declined during June, renewed conflict involving Iran has already pushed energy prices higher again.
Because energy prices have an outsized impact on headline inflation, future CPI reports could become more volatile even if underlying inflation continues improving.
What Investors Should Watch
June's inflation report should be viewed as encouraging—but not conclusive.
Several positive trends are emerging:
Inflation appears to be cooling.
Core inflation continues moving lower.
The Federal Reserve is no longer under immediate pressure to raise rates.
However, there are still reasons for caution:
Energy prices remain highly sensitive to geopolitical events.
Job growth is slowing.
Economic growth has moderated.
Interest rate policy remains uncertain.
Rather than trying to predict the next inflation report or the Fed's next move, investors are often better served by maintaining a diversified portfolio designed to withstand multiple economic scenarios.
Final Thoughts
Every month brings another headline claiming inflation is either "back" or "finally defeated." Reality is rarely that simple.
One month's data doesn't establish a trend, but June's report does provide evidence that underlying inflation pressures may be easing. Whether that continues will depend on energy prices, labor market conditions, and future Federal Reserve policy.
If you're approaching retirement, this is a good reminder that your financial plan shouldn't rely on guessing where inflation or interest rates will be six months from now.
A well-built retirement strategy should be flexible enough to navigate periods of uncertainty while keeping your long-term goals on track.
About the Author
Marc Lowe, CFP® is a fee-only fiduciary advisor based in Waterford, CT, helping small business owners & families make smarter financial decisions.
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