The Week in Charts
Market Recap
The second week of September saw a strong recovery in U.S. equities, largely offsetting the significant losses experienced in the previous week. This rebound came after the S&P 500 had suffered its most substantial weekly decline in 18 months.
Investor Focus on Inflation and Fed Policy
Market sentiment was primarily driven by inflation concerns and anticipation of the Federal Reserve’s upcoming interest rate decision. Recent economic data bolstered expectations for at least a 25 basis point rate cut at the Fed’s next meeting, with some optimistic investors even speculating about a possible 50 basis point reduction.
Key Economic Indicators
The week’s economic calendar was dominated by two crucial inflation reports from the Labor Department:
- Consumer Price Index (CPI):
- The CPI for All Urban Consumers rose 0.2% in August on a seasonally adjusted basis, matching July’s increase.
- Over the past 12 months, the all-items index increased by 2.5% before seasonal adjustment, marking the smallest 12-month increase since February 2021.
- Shelter costs were the primary driver of the overall increase, rising 0.5% in August.
- Food prices saw a modest 0.1% increase, while energy prices declined by 0.8%.
- Core CPI (excluding food and energy) rose 0.3% in August, up from 0.2% in July.
- Producer Price Index (PPI):
- The PPI for final demand increased by 0.2% in August, following no change in July.
- On an unadjusted basis, the index for final demand rose 1.7% over the 12 months ending in August.
Market Implications
These inflation reports, particularly the moderation in consumer price growth, have reinforced expectations for a more accommodative monetary policy.
Investors are now keenly awaiting the Federal Reserve’s decision, with many anticipating that a rate cut could provide further stimulus to the economy and support equity valuations.
The market’s positive response to these economic indicators suggests that investors are becoming more optimistic about the balance between economic growth and inflation control.
However, it’s important to note that the Federal Reserve will consider a broad range of factors beyond these inflation measures when making its policy decision this week.
As we approach the Fed’s meeting, market participants will continue to closely monitor any additional economic data or policy signals that could influence the central bank’s decision-making process.
What’s Going On In Your Portfolio?
Portfolios are fully invested as we were able to take advantage of the recent market weakness to reallocate portfolios. We are still favoring value over growth and will be closely watching the Fed this week to make any needed adjustements.
Bond portfolios continue to be fully invested in High Yield bonds, which is an indication that the longer term trend of the market is still intact.
Upcoming Economic Data to Keep an Eye On
Source: Trading Economics
