Mid-Week Market Minute 09.14.22

Stocks were sharply lower on the week following disappointing data on the inflation front. The Dow Jones Industrial Average fell 3.94% on Tuesday, while the S&P 500 declined 4.32%. Technology stocks were hit particularly hard, as the Nasdaq Composite fell by 5.16%.

Despite falling gas prices, the Consumer Price Index rose 0.1% in August, missing estimates for a 0.1% decline. Headline consumer prices rose 8.3% year-over-year, lower than July’s 8.5% annual increase, but still well above consensus. In addition, core CPI (which excludes the highly volatile food and energy components) climbed by 6.3% on an annual basis, accelerating from last month’s 5.9% pace. Inflation in nonenergy services, which affects 56% of consumer budgets, has yet to subside, rising 0.6% on the month and 6.1% from a year ago. The annual increase was the highest since February 1991. On the other hand, the producer prices report (PPI), showed the prices that producers receive for goods and services at the wholesale level declined 0.1% in August, meeting consensus expectations. On a year-over-year basis, headline PPI increased 8.7%, a substantial pullback from the 9.8% increase in July and the lowest annual rise since August 2021. Core PPI increased 5.6% from a year ago, matching the lowest rate since June 2021.

Leading up to the report, market participants were betting the August inflation report may force the Federal Reserve to be more aggressive with its rate hikes. Tuesday’s higher-than-expected inflation report seemingly caught markets off guard, implying a third consecutive 0.75% (75 basis point) rate hike at the next Fed meeting on Sept. 21. In addition, futures markets now are pricing in the possibility of an additional 75 basis point rate hike in November as well. Yields also have risen in expectation of higher short-term rates, with the 2-year and 10-year Treasury notes now trading at a yield of 3.78% and 3.44%, respectively. For reference, the 2-year Treasury yield was 3.45% just two weeks ago at the beginning of September.

Source: GSAM, CNBC, JPMorgan

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