Presented by The PensionmarkMeridien Team, September 13, 2023
THE WEEK ON WALL STREET
Major U.S. equity indices were moderately lower last week, with the tech-heavy NASDAQ lagging behind the S&P 500 and the Dow Jones Industrial Average. Overall, megacap tech fared better1 than small-cap tech.
Tallying results from last week, the S&P 500 decreased by 1.29%2, the Nasdaq 100 fell by 1.36%3, and the Dow Jones Industrial Average declined by 0.75%4.
STRONG SERVICES SECTOR
Economic activity expanded in the services sector again last month, marking an eighth straight month of expansion.
Given that economic expansion in services is constructive, it can make some folks wonder: “Why haven’t rate hikes cooled down services?” Perhaps this mentality contributed to last week’s lackluster showing in stocks, with Treasury yields5 rising.
However, as the services sector remains strong, so do the prices that come along with it. This logic begs folks to reconsider where the country is at inflation-wise.
The question arises: Has inflation cooled sufficiently for the Fed or is it persisting enough to keep hiking rates? Does the Federal Reserve (Fed) have more work to do6?
FED EXPECTATIONS
Well, we are about to find out next week if the economy has done what it needed to do for the Federal Reserve to pause rate hikes. The September Fed meeting will occur on September 19-20, with the rate hike decision coming on the afternoon of the 20th.
As of last Friday’s market close, Fed Fund futures favored the Fed leaving rates unchanged (92% probability7). If that happens, the Fed target rate would remain at current levels of 5.25% – 5.50%.
But a week can be a long time in markets and economics, especially when it comes to the Fed. Plus, we have some economic data to get through first, namely Consumer Price Index and Producer Price Index data. These reports are on the table for this week and will impact the Fed’s decision.
INFLATION DATA ON TAP
So yes, it is time for the monthly check-in on inflation via the Consumer Price Index (CPI) and wholesale pricing via the Producer Price Index (PPI).
The “cooling inflation” narrative has shifted in recent weeks as inflation persists and Treasury yields have risen overall.
Preliminary estimates for CPI show a 3.6% increase8 year-over-year – that’s a higher expectation than the last two months (3.3%, 3.1%). Month-over-month expectations are also high, with the forecast being a rise of 0.6%9.
We haven’t seen a monthly rise in consumer pricing of 0.6% or higher since the July 2022 data release, which showed a June month-over-month increase of 1.3%. So, the market is on alert. Ideally, the expectations are on the high end of the range, and the number comes in below expectations.
Thinking logically, however, prices still seem stubbornly high for a wide range of goods and services. Time will tell!
SEPTEMBER SEASONALITY
September is known to be a volatile month10 for stocks historically, yet there are no concrete ways of knowing what will happen this month.
Markets have been surprising this year. If you were to ask someone where the S&P 500 would be if the Fed raised rates to these levels as fast as it did, I don’t think many would say 4400-4500!
Ultimately, it’s important to keep in mind that it’s just one month out of twelve. After all, it is the long term that matters.
THE TAKE AWAY
It’s all about inflation data this week and the market’s reaction to it. With the Fed meeting on tap next week, market participants will want to see further evidence – in the form of lower-than-expected inflation data – that the Fed will leave rates unchanged.
Could the rate hike probabilities shift dramatically if inflation numbers run hot this week? They could. And should inflation run hot again, we can expect Treasury yields to rise in anticipation of next week’s Fed meeting and interest rate decision.
As always, we will be paying attention to all the details and caveats affecting you and your money. If you have any questions or needs, please feel free to shoot us an email or give us a call anytime.
We are always here as a resource for you.
The PensionmarkMeridien Team may be reached at 866-871-9963 or meridienteam@pensionmark.com
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Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).
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This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Citations:
1. Yahoo Finance, September 8, 2023
2. Trading View, September 10, 2023
3 Trading View, September 10, 2023
4. Trading View, September 10, 2023
5. Fortune, September 6, 2023
6. CNBC, June 30, 2023
7. CME Group, September 11, 2023
8 Investing.com, August 10, 2023
9. Investing.com, August 10, 2023
10. Investopedia, August 29, 2023
Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).