Market Perspective for October 17, 2022

It was a volatile week in the stock market last week. The Dow finished up 1.2 percent. The S&P 500 lost 1.6 percent, and the Nasdaq fell 3.1 percent. For the year, The Dow is down 18.4 percent, the S&P 500 is down 24.8 percent, and the Nasdaq Composite has lost 34 percent

The major market indexes had a historic turnaround on Thursday, with the Dow Jones Industrial Average jumping 1,500 points from the lows of the day to the highest level of the day. The day started off with the market indexes dropping after the Consumer Price Index (CPI) showed another hot inflation report, which assures that the Federal Reserve will raise rates by another 75 basis points at their next meeting in November and again in December.

On Thursday morning, the consumer price index (CPI) was released. The CPI increased 4 percent, more than the Dow Jones estimate of 3 percent. On 12-month bases, the headline inflation number is up 8.2 percent, but is down from the peak reading of 9 percent last June.

Taking out the volatile food and energy prices, the core CPI was higher for the month, up 0.6 percent, higher than the Dow Jones estimate of 0.4 percent. Core inflation is up 6.6 percent from a year ago, the largest 1-year gain since August 1982.

In the headline number, another jump in food prices was a reason for the increase. Food was up 0.8 percent for the month, the same as August, and up 11.2 percent from last year.

Shelter costs, which make one-third of the CPU, increase 0.7 percent and up 6.6 percent from a year ago. Shelter costs include rent prices, and the increase in rents is mainly responsible for the increase in shelter costs. Medical care services cost increased by 1 percent in September.

According to an economist at MasterCard, consumer spending is still strong. Falling housing prices will eventually work to lower rents, which will help lower the overall inflation figures.

The producer price index (PPI) was released last week. The PPI is the measure of prices that U.S. businesses receive for the services and goods they produce. The PPI showed an increase of 0.4 percent for August, compared with the Dow Jones estimate of a gain of 0.2 percent.

On a yearly basis, the PPI rose 8.5 percent in September, which was a slight decrease from August’s increase of 8.7 percent.

On Thursday, after the release of the CPI report, bonds sold off, and yields jumped higher. For the first time since October 2008, the U.S. 10-year Treasury yield broke through 4 percent and closed at 4.01 percent. The 2-year Treasury yield hit 4.5 percent, its highest level since August 2007. Remember, when bonds sell and go lower, their yields rise.

Mortgage rates continued to climb higher last week. According to the primary monthly mortgage and Freddie Mac, the average 30-year fixed mortgage, it is now 6.29 percent. The rate is up 0.261 percent in 1 week and up 3.87 percent in 1-year.

Consumer spending was flat last month compared to August, as there is evidence consumers are dipping into savings for some products. Individual sectors are showing good consumer spending.

Since retail sales numbers are not adjusted for inflation, real spending across the sectors decreased for the month. Individual sectors that showed a decrease include sporting goods, furnishing and home stores, motor vehicles and parts dealers, and electronics.

Stores showing an increase in sales include online stores, clothing retail, general merchandise stores, and health and personal care stores.

This week’s economic calendar, October 17-21, includes:
• Tuesday: Industrial production and capacity utilization, U.S. Federal Reserve
• Wednesday: Housing starts
• Thursday: Weekly unemployment claims from the U.S. Department of Labor
• Thursday: Existing home sales, National Association of Realtors

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