10|19|2021

Overblown Inflation? | October 15, 2021

AUTHOR: Jason Roque, CFP®, APMA®, AWMA®
TITLE:   Investment Adviser Rep – CCO
TAGS: S&P 500, NASDAQ, CPI, PPI, Oil, Retail Sales, Sentiment
  

Markets lost ground for the second week. Does this say more about the last two weeks or the week ahead?

Monday                       S&P 500 0.11% | NASDAQ 0.41%

Markets opened the week in a muted tone. There was very little movement as Consumer Price Index (CPI) data was awaited on Tuesday.

Tuesday                        S&P 500 1.12% | NASDAQ 1.54%

CPI data for February showed inflation inching up slightly. Markets opened in the red on the news, but an earnings beat by Oracle allowed equities to march higher.

Wednesday                 S&P 500 0.19% | NASDAQ 0.54%

Crude oil inventories fell when a surplus was expected, which will further support higher prices for energy. Interest rates climbed on the back of the higher than expected CPI data from Tuesday. Growth stocks lagged as the data implies the Federal Reserve Board (FRB) will be less likely to cut rates.

Thursday                     S&P 500 0.29% | NASDAQ 0.30%

The Producer Price Index (PPI), a wholesale inflation gauge, rose in February to 1.6%. Retail sales advanced less than expected and initial jobless claims remained benign. A strong jobs market with firming inflation does not bode well for future rate cuts. Markets sold on the news, though not aggressively, as hope remains for FRB rate cuts later in the year.

Friday                          S&P 500 0.65% | NASDAQ 0.96%

Consumer sentiment is projected to fall to 76.5 in March from 76.9 in February. While lower, February and March are the first readings in the 70’s since August of last year. The week closed out on a sour note as commodity prices rise with inflation data. Further concerns mount that the inflation fight may have longer to go before a rate cut.

Conclusion                  S&P 500 0.13% | NASDAQ 0.70%

This is the first back-to-back losing weeks for the market in 2024. This leads to an FRB meeting week where guidance about potential future rate cuts will be hotly watched. Not only is the FRB meeting next week, but there is very little in the way of economic data for the week. This puts all the more focus on the FRB. 

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Rates were more subdued last week. Has inflation been overblown or will rates continue to climb in response?

Monday

Investors attempted to move higher at the open of the week, but they failed… The S&P 500 ended up losing 0.8%. A 3% rise in oil prices stoked concerns that inflation was going to persist.

Tuesday

Markets slipped as the S&P 500 lost 0.4% on the day. Earnings season starts in earnest this week with most major banks reporting. Concerns lie not with current performance but rather the forwarding guidance. The expectation is that companies will begin to reference the impact inflation will have on future performance.

Wednesday

The S&P 500 rose 0.3% on earnings data. Economic data was not aiding markets as headline inflation rose to 5.4% YoY in September. Softer core inflation caused interest rates to slip though. This could cause the Federal Reserve Bank (FRB) to delay the start of tapering. An overall dovish policy move that favors growth stocks.

Thursday

Investors drove the market higher at the open as employment data improved. For the first time since the start of the pandemic initial jobless claims fell below 300K. Markets were able to hang on to the gains as the S&P 500 rose 1.7% on the day!

Friday

Markets moved up to close the week. The S&P 500 rose 0.75% on the day. Markets jumped at the open on unexpectedly strong retail data for September, closing out the 3rd quarter. After the jump at open, investors coasted into the close.

Conclusion

The S&P rose nearly 2% on the week, while yields started to shrug back from their highs a few weeks ago. Interest rates are still expected to be on the rise from a cyclical standpoint. The tactical move lower is not surprising considering the shock to the upside over the last month.

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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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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.