September 14, 2022
Good morning,
Yesterday’s higher/hotter than expected CPI (Consumer Price Index) number, indicating higher inflation than expected, produced the strongest one-day rout in the equity market in over two years (Covid’s arrival in 2020). Yesterday, the S&P Index was down -4.32%.
In Monday’s Morning Note, it was suggested that an improving inflation picture might be responsible for last week’s market strength (+5.4% in four days – see chart below). The market’s strong reaction to the hot CPI number yesterday confirmed what was behind last week’s rally, and for the time being, emphatically dismissed the notion that inflation woes may be behind us. Yesterday’s one day selloff almost perfectly erased the last week’s progress.
Even though yesterday’s fireworks were spectacular, the market is not in new territory. We are simply back where we were coming out of Labor Day – the Fed is going to put battling inflation first for now and will raise rates aggressively at upcoming FOMC meetings. One perverse positive from yesterday’s smack-down – markets like increased certainty and now +75 basis points looks all but certain for the Fed on 9/21.
Be well,
Mike