Stocks Down As Inflation Stays Hot Image: Bigstock Stocks closed sharply lower yesterday after a hotter than expected CPI report. The tech-heavy Nasdaq led the decline with a -5.16% drop. That was followed by the S&P's -4.32%, the Dow's -3.94%, and the small-cap Russell 2000's -3.91%. The Consumer Price Index (CPI) yesterday morning, showed headline inflation up 0.1% m/m vs. last month's flat reading and views for -0.1%. On a y/y basis, it fell from 8.5% to 8.3%. But that missed expectations for 8.1%. The real surprise in yesterday's report was in the core rate (ex-food & energy), as it gained 0.6% vs. last month's 0.3% and views for another 0.3%. On a y/y basis, unlike the headline number, it increased from 5.9% to 6.3%. The consensus was for 6.1%. Quite frankly, yesterday's report was not the extreme shocker that the news stories made it out to be. But, given that inflation had ticked lower for the last couple of months, seeing it tick up, was a stark reminder that inflation is becoming entrenched and it won't be an easy fight knocking it down. Next week, on September 21, the Fed will announce their next move on interest rates. Going into yesterday's CPI report, there was a 90% likelihood that the Fed would raise rates by 75 basis points. After the report came out, that jumped to 100%, with a 24% likelihood they raise by a full 100 bps. Nobody will know for sure, until next Wednesday, how big they go. But the market is looking beyond that and wondering what they will do afterwards, as there are two more FOMC meetings after this one in November and December. Interestingly, even though it didn't get much airtime (the CPI number grabbed all the headlines), the NFIB Small Business Optimism Index increased from 89.9 to 91.8, surpassing both last month's report and the consensus for 90.5. Adding to the market's worries is the impending deadline for a possible rail strike on Friday. That could create further supply chain disruptions if they do. And only add to inflationary concerns. A spokesperson for the Association of American Railroads, a freight rail industry group, said that carriers "are not planning a walkout if ongoing negotiations remain unresolved." But nothing is done until it's done. And we'll have to wait and see what Friday brings. In the meantime, today we'll get MBA Mortgage Applications, the PPI-Final Demand report, and the Atlanta Fed Business Inflation Expectations report. And we'll see if the market can stem the selling from yesterday or if there's more to come. See you tomorrow, Kevin Matras Executive Vice President, Zacks Investment Research |
Post a Comment
Post a Comment