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Hot CPI Crushes Rally, Fed to Raise Rates Again Next Week (September 16 Market Recap

September 18, 2022

Hot CPI Crushes Rally, Fed to Raise Rates Again Next Week (September 16 Market Recap

Indices 

  • Dow 30,822 –1,329 or –4.1%. 
  • Nasdaq 11,448 -664 or –5.5%. 
  • S&P 4,067 -194 or –4.8%. 
  • USD10Y 3.448% +12.7bp or +3.8%. 
  • WTI Crude $85.40/bbl -$0.70 or –0.81%. 

Hot CPI Crushes Market Rally 

Tuesday’s Consumer Price Index print was a major disappointment and spelled doom for the four-day rally. August headline CPI was +0.1% vs expectations of –0.1% and last month’s flat print. Despite the disappointment, the year-over-year (YoY) number continued to decline to 8.3%, down from 8.5% last month. Core CPI was not nearly as rosy as it missed expectations badly; +0.6% vs +0.3% and the YoY number increased to +6.3% vs +5.9% last month. Core CPI excludes food and energy in its calculation and energy was down 5% month-over-month (MoM). As a result, the headline number looked ok, but the core number rose significantly as shelter and medical care led a long list of categories whose prices increased MoM.  

While Tuesday’s CPI number dealt a paralyzing blow to the market, wholesale prices gave a somewhat rosier outlook. The Producer Price Index (PPI), published Wednesday, reported prices down –0.1% MoM, a second consecutive negative print (last month –0.4), and a decline in wholesale prices YoY to +8.7% vs +9.8% in July. Also notable is that since the PPI hit its high in March of 2022 of +11.7%, the YoY number has fallen four out of the last five months. The question remains as to when the decrease in wholesale prices will trickle into consistently lower consumer prices. 

Fed to Raise Rates Again Next Week 

The Fed will begin its meeting on Tuesday of this week and release a statement with regard to their next rate hike on Wednesday.  With most market observers expecting the Fed to raise rates by another 75 basis points, the focus will be directed to Fed Chairman Powell’s statement to the media immediately following the interest rate hike announcement

Meanwhile, two of the Fed’s own economists released a paper in late July arguing that economic conditions now mirror those of the United States in 1920, an economy exiting a pandemic (the Spanish Flu), high inflation, and tight labor conditions. The Fed, in an attempt to curtail inflation, raised rates from 4% to 7% over six months. Unsurprisingly, a recession followed which saw manufacturing output slashed by 22% and unemployment up by 11%. The authors concluded that… 

The Federal Reserve miscalculated the lag times inherent in monetary policy changes, leading the central bank to raise interest rates during the early stages of a recession,” the authors continue. “While it is important for the Federal Reserve to tighten monetary policy and manage inflation, it is also important to adjust policy rates at an appropriate pace. 

Economic Calendar 

  • Monday – N/A. 
  • Tuesday – N/A. 
  • Wednesday – August Existing Home Sales, FOMC Statement on Interest Rates. 
  • Thursday – Initial Jobless Claims, August Leading Economic Indicators. 
  • Friday – September S&P US Manufacturing and Services PMI (flash). 

If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review. 

September 16 Daily Trading Recap…

Monday – Dow +229 to 32,381, Nasdaq +154 to 12,266, S&P +43 to 3,110, USD10Y +4.71bp to 3.362%. 

  • All eleven S&P sectors traded higher today, led by Energy, Technology, and Consumer Discretionary. 

Tuesday – Dow –1,276 to 31,104, Nasdaq -632 to 11,633, S&P -177 to 3,932, USD10Y +6.0bp to 3.422%. 

  • All eleven S&P sectors traded down today, led lower by Communication Services, Technology, and Consumer Discretionary. 
  • August Headline CPI was +0.1% vs expectations of –0.1% and last month’s flat reading. Year-over-year headline CPI declined to 8.3% vs last month’s 8.5%. 
  • August Core CPI was greater than expected at +0.6% vs +0.3% expected and last month’s +0.3% print. Year-over-year Core CPI rose to 6.3% vs 5.9% last month. 

 Wednesday – Dow +30 to 31,135, Nasdaq +86 to 11,719, S&P +13 to 3,946, USD10Y –0.1bp to 3.412%. 

  • Ten of eleven S&P sectors traded higher, led by Energy, Consumer Discretionary, and Utilities. 
  • August Producer Price Index was in line with expectations at –0.1% and vs last month’s -0.4% print. 

Thursday – Dow -173 to 31,961, Nasdaq -167 to 11,552, S&P -44 to 3,901, USD10Y +4.7bp to 3.459%. 

  • Nine of eleven S&P sectors traded down today, led lower by Energy, Utilities, and Technology. 
  • Jobless claims were lower for the fifth consecutive week at 213,000 claims vs 226,000 expected and last week’s revised lower 218,000 print (originally was 222,000). 
  • August Retail Sales were better than expected at +0.3% vs expectations of flat and vs last month’s -0.4% print.

Friday – Dow -139 to 30,822, Nasdaq –103 to 11,448, S&P -28 to 3,873, USD10Y -1.1bp to 3.448%. 

  • Nine of eleven S&P sectors traded down today led lower by Energy, Industrials and Materials. 
  • FedEx (FDX) plunged 21.4% after withdrawing their 2022 guidance due to “significantly worsened” global economy.  
  • September University of Michigan Consumer Sentiment missed at 59.5 vs expectations of 60 but improving upon August’s 58.2 print. 
  • September University of Michigan 5-year Inflation Expectations came in at 2.8% vs last month’s expectations of 2.9%.

If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA. 

Category iconEducation Tag iconinflation,  market recap

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