Mid-Week Market Minute 9.13.23

Stocks Slightly Higher; Takeaways from August CPI Report

Global stocks were modestly higher this week as investors digested fresh data on the inflation front. In the U.S., the S&P 500 was higher by about 0.50% mid-week. Stocks in the energy sector led the way, gaining nearly 2% on the heels of the recent rally in crude oil prices. In bonds, interest rates were mostly unchanged for the week despite the hotter than expected inflation print.

This week’s reading on August CPI inflation left us with a couple of key takeaways. First and foremost, core inflation (excludes food and energy) continues to move in the right direction, albeit more slowly than the central bank may prefer. After peaking at around 6.6% one year ago, core inflation now stands at a much more manageable 4.3%. Second, headline inflation showed a significant reacceleration as headline prices rose 0.6% in August. On an annual basis, this marks a 3.7% increase, higher than the street’s expectations for a 3.6% increase. Oil prices were the primary driver behind the acceleration, resulting in higher energy costs for consumers. Gasoline prices affect nearly all consumers and play an outsized role in inflation expectations. The central bank has worked diligently to keep inflation expectations anchored around 2%, and any indication they are losing that battle could tip the scales in favor of an additional rate hike in November. Furthermore, if consumers begin extrapolating the recent trend higher in energy prices, we may experience a drag on consumer spending, the driving force behind the U.S. economy.All told, we believe the FOMC will remain on hold at the Sept. 20 policy-setting meeting as it continues to monitor the delayed impacts of past rate hikes.

Source: GSAM, CNBC, JPMorgan

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