Weekly Market Insights: September 19, 2022

Inflation fears intensify, drive markets down

Domestic stocks fell sharply last week, as inflation fears intensified and short-term bond yields reached levels last seen in 2007. The S&P 500 recorded its largest weekly drop since mid-June, while the Dow tumbled 1,200 points on Thursday for its worst drop in two months.

The defining event of the week was the consumer price index (CPI) report. The CPI numbers for August came in above expectations and dimmed hopes the economy had moved beyond “peak inflation.” Prices rose 8.3% for the 12 months ended in August, down just slightly from July’s 8.5%. Another concerning number was core inflation, which jumped to 6.3% — its highest level since March.

The producer price index (PPI) also came in hot. August PPI decreased 0.1% last month, but still remained elevated at 8.7% on an unadjusted basis. And while gasoline prices may be falling, other energy costs are rising. Electricity costs rose 15.8% in August from year ago, driven by higher prices for natural gas.

Last week also brought news of impending layoffs at several large companies, including Goldman Sachs, Ford and Microsoft. But weekly jobless claims offered a different picture, falling to their lowest level since early summer at 213,000.

Other closely watched data reported last week included retail sales. Falling gas prices helped the preliminary reading on consumer sentiment for September, produced by the University of Michigan, which hit a 5-month high. Plus five-year inflation expectations in the survey fell to 2.8%, the lowest in over a year.

After taking a nosedive following the CPI report on Tuesday, markets rebounded slightly before falling again late in the week. The catalyst for the drop this time: a gloomy outlook from FedEx, which announced it was pulling its earnings guidance for fiscal year 2023 due to expectations for a “continued volatile operating environment.” The new FedEx CEO fueled the fire by telling a CNBC interviewer he expected a global recession. Following the comments, FedEx stock fell by about 21% on Friday.

U.S. Treasury yields pushed higher over the course of the week, especially on short- and intermediate-term maturities, as disappointing inflation data and a further decline in jobless claims pretty much cemented another 75-basis-point hike by the Fed at their meeting this week. Expectations for continued rapid monetary tightening pushed the two-year Treasury note yield to its highest level in nearly 15 years.

So what does this all mean as we head toward the end of the third quarter and into the fourth? Investors should be prepared for ongoing volatility over the next several months, as short-term events continue to rattle markets. The best thing you can do right now is to schedule an appointment with your financial advisor to review your financial plan and make sure it still works for your goals. Above all, stay focused on the long term in your investment outlook.

Coming this week

• The newest reading of the Consumer Price Index (CPI) will be out Tuesday. Last month, the CPI (the core marker for inflation) was at 8.5%. Gas prices have continued to drop, albeit not at the same rate as in July, so hopefully we will also see a decline in the CPI. Movement in either direction could be a major market mover.

• The Producer Price Index (PPI) will provide another inflation mile marker on Wednesday.

• On Thursday, jobless claims, retail sales, industrial production and business inventories will give a peek into whether the economy is slowing further.

• Finally, on Friday we’ll get a consumer sentiment reading, which has remained fairly strong so far.

• Friday will be a quadruple witching day. (Quadruple witching is when stock index futures, stock index options, stock options and single stock futures all expire on the same day.) Market movements tend to be severely magnified on these days, so anything goes as we end the week.

If you have any questions or you’d like to talk to us about your financial strategy, feel free to reach out anytime. Our team is here to help.

All the best,
Sears Wealth Management & Insurance Solutions

Sears Wealth Management & Insurance Solutions is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Sears Wealth Management & Insurance Solutions are not affiliated companies. Michael Sears CA License #0757582, Seth Morris CA License #4060606, Chase Morris UT License #907842

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