US business inventories for July were reported at 0.2%, meeting the anticipated figure of 0.2%. The previous month also showed a similar increase of 0.2%.
Retail inventories, excluding autos, rose by 0.1%, aligning with the figures from the last month. The total business inventories/sales ratio, based on seasonally adjusted data at the end of July, stood at 1.37.
Business Inventory Data Shows Stability
This was a decrease from a ratio of 1.40 in July 2024.
We see the July business inventory data as confirmation of a stable economic picture, with the 0.2% increase matching estimates perfectly. The most important detail is the inventory-to-sales ratio, which has fallen to 1.37 from 1.40 in July of 2024. This signals that demand is steadily absorbing supply and businesses are managing their stock efficiently.
This report reinforces the narrative that the Federal Reserve will remain patient, as it doesn’t suggest an overheating or faltering economy. With the latest August CPI data showing core inflation holding at a stubborn 2.5%, this steady inventory figure gives policymakers little reason to pivot toward rate cuts soon. We expect them to maintain the current federal funds rate through the end of the year.
Consequently, we should anticipate implied volatility to remain suppressed in the coming weeks. The CBOE Volatility Index (VIX) has been hovering near a low of 14, and this predictable economic data will do little to stir market uncertainty. This environment is favorable for strategies that profit from low volatility, such as selling premium.
Retail Inventory Insights
The 0.1% rise in retail inventories, excluding autos, points to consistent, albeit not spectacular, consumer health. We can look for range-bound behavior in consumer-focused ETFs like the XLY and XLP. This suggests opportunities in selling iron condors or strangles with expirations in October and November.
Looking back, the current lean inventory levels are a stark contrast to the bloated stockpiles we saw throughout 2023 and early 2024. That period was defined by supply chain bullwhip effects that hurt corporate profits. The current efficiency suggests better margin control for companies, underpinning a stable market rather than an explosive one.
Given this backdrop, we should focus on theta-decay strategies on broad market indices like the SPX. With the market unlikely to make a major breakout move, selling covered calls against long-term holdings or cash-secured puts on dips can generate income. The key is to capitalize on the market’s expectation of continued stability.
