 | AUTHOR: Jason Roque, CFP®, APMA®, AWMA® TITLE: Investment Adviser Rep – CCO TAGS: S&P 500, NASDAQ, Small Business, CPI, FRB Minutes, PPI, Jobs, Earnings |
The week was all about inflation data, but have we inflated its importance?
Monday S&P 500 0.04% | NASDAQ 0.03%
Markets were little changed on the day. There was very little economic news out before the bell on Monday. The week will likely be sharply focused on Wednesday when we get the updated figures for March inflation. The report is expected to show an increase from February.
Tuesday S&P 500 0.14% | NASDAQ 0.32%
Small business sentiment slipped in March to the lowest level since January 2013! Even still, markets advanced ahead of inflation data on Wednesday. Growth stocks out-performed which signals that an increase of inflation data would likely not hamper growth stock leadership. This is important because the rate cuts expected later this year would favor growth stocks most.
Wednesday S&P 500 0.95% | NASDAQ 0.84%
Consumer Price Index (CPI) information showed that inflation has stopped cooling. A 0.1% reading was replaced with a 0.4% reading. The main culprits were transportation services, energy, and home services. The markets moved sharply lower, but likely on the Federal Reserve Board (FRB) minutes release, rather than on CPI data. FRB Minutes showed concerns that inflation was stagnating, endangering the likelihood of the FRB cutting rates later this year.
Thursday S&P 500 0.74% | NASDAQ 1.68%
Producer Price Index (PPI), which is a proxy for wholesale inflation rose less than expected. Initial jobless claims fell on the day supporting a strong job market. The weaker than expected inflation data led to a bounce back rally by markets. Little was changed about rate cut expectations moving forward however, given the FRB minutes from March.
Friday S&P 500 1.46% | NASDAQ 1.62%
Michigan Consumer Sentiment is projected to slip, but remains in the high 70’s. Financial firms got earnings season underway on Friday and they did not impress. The slide on Friday solidified a down week for equities. The Nasdaq led markets lower on the day, but its Thursday rebound mitigated losses for the week.
Conclusion S&P 500 1.56% | NASDAQ 0.45%
The week ended well into the red. The fall represented the worst week for the S&P 500 since January. In January the focus was on the markets accepting that the FRB may only cut rates three times this year. This time it is on the realization that perhaps the FRB may not cut rates at all. As of now investor expectations are that the FRB will cut rates one, maybe two times (September and December). The meeting in two weeks should provide more clarity. Even with this change to rate cut expectations, it will be interesting to see what action the FRB takes with Quantitative Tightening. If they do start to slow the selling bonds that should provide some relief.
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It was a wild ride last week. As it came to a close, markets were pointing north, but will this endure?
Monday
Markets opened the week sharply lower on Monday, with all major equity indices losing around 2% on the day. This brings the S&P 500 fall from peak, now 4.5%. This came as concerns worsened that a default by China’s Evergrande was likely on Thursday.
Tuesday
The S&P 500 came out of the gates hot as buyers attempted to ‘buy the dip’. This did not last though as markets faded into the close and the S&P 500 managed to end breakeven. Typically, it is a good sign to see investors buy back half the losses from the prior day. As it shows a purchasing appetite. That lack of appetite may be a waning after a summer of feasting.
Wednesday
Markets rose beyond VIX expectations on Wednesday. This came as Evergrande came to a deal that would help them avoid defaulting on Thursday. Additionally, the Federal Reserve bank (FRB) completed their two-day meeting. Dot plots show increased risk of rate increases in 2023. The FRB also announced that they will begin tapering later this year. In prior meetings they stated they will be discussing it, so this is a dramatic shift.
Thursday
The rise continued through Thursday as investors appeared to applaud the FRB’s effort to tighten monetary policy… Not a sentence I ever expected to write. What it does, however, is set expectations and create predictability.
Friday
The Markets ended the week mixed. The S&P 500 rose, however capping a very active week for the market. In what was a busy week for housing, we learned that new home sales rose 1.5% for August on Friday.
Conclusion
This last week started with a gash to the bottom line as markets opened the week sharply lower. Clawing its way back into the green, the S&P 500 actually rose by 22 points (or 0.5%) for the week. Regardless of how the numbers ended for the week, volatility is notably higher the last few weeks. We started the month at 16 and have ranged between 18 and 26 in September. The month is not over and more may be on tap as focus on the debt ceiling heats up.
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Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
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If you would like to receive this weekly article and other timely information follow us, here.
Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.