Stocks Up Modestly As Inflation Concerns Grip The Market  Image: Bigstock Stocks closed modestly higher yesterday after Tuesday's sell-off. Tuesday's hotter than expected Consumer Price Index (CPI) report spooked investors as it suggested inflation was possibly becoming entrenched. While headline inflation dipped from 8.5% to 8.3% y/y, that was higher than the expected 8.1%. The core rate (ex-food & energy) rose from 5.9% to 6.3%. The consensus was looking for 6.1%. Although, for perspective, that's still down from the peak headline reading of 9.1%, and the peak core rate of 6.5%. We got another look at inflation yesterday with the Producer Price Index (PPI) report. For the month, inflation declined -0.1%, as expected. And y/y, it came in at 8.7%, also as expected. But that's a sizeable dip vs. last month's y/y pace of 9.8%. Ex-food & energy, it was up 0.2% m/m, and 8.1% y/y vs. last month's 7.6%. And ex-food, energy & trade services, it was up 0.2% m/m, and 5.6% y/y vs. last month's 5.8%. As it stands now, the Fed is expected to raise interest rates by at least 75 basis points next week, when their 2-day FOMC meeting ends on 9/21. And there's now a 28% chance that they could raise by a full 100 bps. We shall see. But, with high inflation posing a bigger risk to the economy than higher interest rates, a steadfast Fed that maintains an aggressive stance on rates is likely to be cheered by the market. Because the sooner rates go up, the sooner inflation can come down. And while there's still some uncertainty over how high they go next week (even though the odds are now at 100% they do at least 75 basis points), the question most people will be wondering about is how big will they go in November and December – the last two FOMC meetings for the year after this one. In other news, MBA Mortgage Applications fell -1.2% w/w with the purchase index up 0.2%, but refi's down -4.2%. Traders will also be watching developments regarding a possible rail strike as the Friday negotiation deadline looms. One of the unions has already said its members have agreed to strike if a deal is not reached. So far, 8 of the 12 unions have agreed to a deal. But 4 have not. There is talk of a possible extension until 9/29. And the possibility of Congress getting involved if talks break down. This will be watched closely as a strike could have a negative impact on already disrupted supply chains, and exacerbate already high inflation. On the docket for today are Weekly Jobless Claims, Retail Sales, the Philadelphia Fed Manufacturing Index, the Empire State Manufacturing Index, Business Inventories, and Industrial Production. Even though inflation remains too high, it is ticking down. Slower than what people had hoped for, but ticking down nonetheless. And the Fed has insisted they will "keep at it until the job is done." In the meantime, the economy remains strong (Q3 GDP is expected to come in at 1.3%), consumer demand is strong, the labor market is strong, and corporate earnings are strong. And that's why it looks like there's a lot more upside to go for both the economy and the market. To learn how to take advantage of the next leg up, be sure to read our latest commentary... Don't Miss Out On The Next Leg Up In The Market Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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