weekly market update

Heading into next Wednesday’s important consumer price index (CPI) report, markets traded rather nervously as oil prices and interest rates continued to tick higher, and investors contend with several conflicting signals around the near-term trajectory of inflation.  On one hand, while still below their 2022 highs, energy prices have steadily climbed, and this week saw Saudi Arabia and Russia extend their voluntary oil production cuts while the prospect of a strike at liquified natural gas (LNG) production sites in Australia threatens to complicate the picture for LNG prices.  In addition, rising odds of a United Auto Workers (UAW) strike against the Big Three (General Motors, Stellantis/Chrysler, and Ford) pose a risk to car prices while healthcare, auto, and property insurance cost increases are also receiving more attention.
 
On the other hand, this week saw encouraging disinflation headlines around labor, food, and shelter.  For example, Walmart, the country’s largest private employer, announced cuts to starting pay for new workers while Kroger, the nation’s largest supermarket chain, noted in its second quarter earnings release that disinflation was “occurring at a greater rate than originally anticipated”.  Furthermore, rent growth has cooled significantly throughout the summer and is approaching negative territory for the first time since early in the pandemic as rents in August were just 0.28% higher than a year ago per real estate tech platform RealPage. 
 
Multiple Federal Reserve members have recently hinted at no rate hikes on September 20th, so markets are pricing in less than a 10% chance of a hike later this month (per CME FedWatch), but next week’s CPI report will be crucial for a Fed that has stressed data dependence.  Currently the consensus estimates for headline year-over-year CPI growth are 3.6%, up from 3.2% last month, and core CPI (ex-food and energy) are for 4.3%, down from last month’s 4.7% (per FactSet).  Over the last thirty days the S&P 500 has largely traded sideways and next week’s inflation data will likely play a major role in the direction of the next leg for markets.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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