September 14, 2023
Good morning,
The next big event for markets is next week’s (9/20) Fed decision, pause or raise. To the extent that this week’s data dump might influence next week’s rate decision is why the dump has been the only game in town this week. The markets (stocks and bonds) were leaning toward “pause” coming into the week, and yesterday’s CPI (Consumer Price Index) release, the most important inflation data set in a sea of data this week, came in modestly higher than expected.
A surge in gasoline prices in August boosted consumer price growth. Core annual inflation continued to moderate, largely driven by slower price growth in core commodities prices, including another decline in used car and truck prices. The disinflation impact from used cars and trucks, however, is expected to disappear in the coming months. Medical care inflation is also turning up, as the pandemic distortions are now largely behind us. Shelter inflation has budged little and is still high. Furthermore, super-core inflation (a Fed term) picked up last month. All of this suggests that the disinflation path will turn bumpier ahead. By the end of trading yesterday, the markets now seem to expect the Fed to stand pat next week, but lean toward another rate hike later this year, most likely in December. To equity markets, this pushes the coveted rate cut decision further out on the calendar. The Fed must keep its tightening bias.
Two technical signals tripped negative yesterday; Dorsey Wright’s NYSE Bullish Percent Indicator and NDR’s Rally Watch Indicator both gave negative signals. Without swamping you with a description (but please do request a fuller explanation that I would love to provide you), I’ll simply interpret them to say the risk of further correction has gone up and the likelihood of further upside has gone down. I remain in defensive mode, which basically equates to not committing new capital to the market at this time.
See you Monday.
Be well,
Mike
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