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Financial Market Update – Week of 09/18

September 18, 2023

Overall, major U.S. stock indexes traded in mostly narrow trading ranges last week, digesting the inflation data while eagerly awaiting this week’s Fed rate decision and commentary.

Putting numbers to the week, the S&P 500 declined marginally by 0.16%, the Nasdaq 100 fell by 0.51%, and the Dow Jones Industrial Average rose very slightly by 0.12%.

Inflation Warming – The Latest

August Consumer Price Index (CPI) data showed inflation rising a tick more than expectations, with a 3.7% year-over-year increase versus the 3.6% expected. Breaking it down further:

  • CPI increased 0.6% month-over-month, in line with estimates. This is the biggest monthly jump this year.
  • Gasoline was the primary culprit in the August CPI metric’s rise.
  • Core CPI (which removes volatile food and energy from the data) rose 0.3%, higher than expected.
  • Food prices, both “at home” and “away from home,” also rose. No surprises there!
  • The Producer Pricing Index (PPI) also ran hot in August.

Some analysts say that the higher inflation numbers for August are nothing to worry about. Others feel differently. Markets took the mixed yet higher inflation data in stride, mostly shrugging off the CPI data after its release.

Now, the market is holding its breath ahead of the Federal Reserve meeting this Wednesday.

Wednesday Is “FedDay”

Despite last week’s higher August inflation reading, probabilities have remained very high that the Fed will leave rates unchanged on Wednesday, according to the CME FedWatch Tool.

Any change in rates on Wednesday would be a shock to the market at this point. But it’s not the rate decision that many are looking at – it’s the Fed’s guidance and statement after the decision is released.

What is the Fed thinking about the November meeting? How do the recent inflation metrics affect their policy mindset? Will there be more rate hikes – wasn’t the Fed supposed to be almost done?

All of these questions are on the mind of the collective market right now. Inquiring minds want to know!

Treasury Yields Rise

Though markets have a 98% certainty (as of last Friday’s close) that the Fed will leave rates unchanged at this week’s meeting, Treasury yields rose last week.

Rising Treasury yields the week ahead of the Fed meeting may indicate the market’s expectations for the Fed to leave the door open for more hikes after this week’s September meeting.

Crude Oil & Gasoline March Higher

Gasoline reached 2023 highs last week, as rising crude oil prices translate to rising prices at the pump. 

Crude for October delivery marched higher last week, adding close to 3.73% and closing last week near $90.77 per barrel.

Oil supply concerns are the focus, as U.S. Crude Oil in the Strategic Petroleum Reserve has declined sharply over the last year (by around 20%).

The Beat Goes On

Things won’t always be all about the Federal Reserve and inflation. But for now, the Fed meeting and subsequent commentary are front-and-center for the markets this week.

The recent mixed, yet higher inflation data is certainly a deviation from what we have seen over the last year. Perhaps a rise was to be expected, given interest rates have remained firm even as we’ve gotten more tame inflation prints over the last year or so.

Regardless, we will keep our eyes on the Fed this week, looking for any clues or direction on future policy.


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