Market Perspective for September 18, 2022

Last week was another down week for the major market indexes brought on by the August Consumer Price Index (CPI), which came in worse than expected. Because of this, the stock market experienced its worst day since June 2020.

The major market indexes experienced their fourth losing week in five. The Dow lost 4.1 percent, the S&P 500 declined 4.8 percent, and the Nasdaq Composite dropped 5.5 percent. Market traders are now calling the summer rally nothing but a bear market bounce.

Last Tuesday, the release of the August CPI caused the Dow Jones Industrial Average to fall 1,276.37 points, or 3.94 percent, closing at 31,104.97. The S&P 500 sank 4.32 percent, and the Nasdaq Composite plunged 5.16 percent, finishing the day at 11,633.57.

Only five stocks listed on the S&P 500 closed in positive territory. As with other recent market pullbacks, tech stocks were hit especially hard. Facebook (Meta) lost 9.4 percent, and chip maker Nvidia fell 9.5 percent.

The August consumer price index report came in with a higher than expected inflation number. The headline inflation number rose 0.1 percent month over month, which was a surprise given the falling gas prices.

Core inflation increased 0.6 percent month over month, and for the year-over-year number, inflation remained high at 8.3 percent. Excluding food and energy costs, the consumer price index was up 0.6 percent from July’s report and an increase of 6.3 percent from August 2021.

Economists had expected a decline of 0.1 percent for overall inflation and a 0.3 percent increase for core inflation.

As mentioned, the market tanked after the release of the CPI, mainly because most traders were concerned that the Federal Reserve is going to push the economy into a recession. The August CPI report almost guarantees the Fed will raise rates by 0.75 percent at their next meeting this week.

The CPI report is the last report to be issued before the next Federal Reserve meeting starting on September 21st. If the Fed does increase rates by another 0.75 percent, it will be the third consecutive 0.75 percent interest rate hike. The CPI rate could cause the Fed to continue its aggressive interest rate hikes longer than many investors once believed.

According to CME FedWatch, there is a 34 percent probability of a 1 percent increase at the next Federal Reserve Meeting. There is a 66 percent probability of a 75 basis point increase, down from a 91 percent chance the day before the CPI came out.

Markets also fell sharply because of a warning from FedEx. The shipping company withdrew its full-year guidance, stating it will begin cost-cutting efforts to contend with the soft global shipping volumes. They also see the global economy as significantly worsening.

The shares of FedEx plunged 24 percent at the open and finished the day down 43.68 points or 21.32 percent, and at a 52-week low. Shares of other shipping companies also fell, with UPS losing 4.5 percent and XPO Logistics falling 4.7 percent.

On Wednesday, the producer price index (PPI), which is a gauge of prices received at the wholesale level, fell 01.1 percent. Excluding energy, food, and trade services, the PPI rose 0.2 percent. This is in line with what economists had expected for the headline PPI.

The headline PPI year-over-year increase of 8.7 percent is a sizable pullback from the 9.8 percent increase in July and the lowest year-over-year gain since August 2021. The drop in prices was mainly from a decline in energy prices.

The yield on the 10-year U.S. Treasury bonds rose for the seventh week in a row. The yield was up 3.45 percent, which is up from 3.32 percent a week ago and up from 2.64 percent at the end of July. The yield curve is inverted, with the 2-year Treasury yield up to 3.87 percent, its highest level since 2007.

Consumers continue to shop as U.S. retail sales unexpectedly rose during August by 0.3 percent compared with a decline of 0.4 percent the month before. Excluding gasoline sales, retail sales rose 0.8 percent in August. These figures are not adjusted for inflation.

This week’s economic calendar:

  • Monday: Housing market index
  • Tuesday: Housing starts
  • Wednesday: Existing home sales
  • Wednesday: The Federal Reserve announces the new interest rate
  • Thursday: Weekly unemployment claims
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