Equities Inch Higher as Investors Assess Inflation Reports, Fed Meeting Minutes, and the start of Earnings Season

Equities Inch Higher as Investors Assess Inflation Reports, Fed Meeting Minutes, and the start of Earnings Season

Equity markets inched higher last week as investors digested inflation reports and Fed meeting minutes. Global equities (represented by the MSCI All Country World Index) were up 0.70%, and domestic stocks (represented by the S&P 500 Index) were up 0.47%.

Inflation

Inflation reports in the form of the Consumer Price Index (CPI) and Producer Price Index (PPI) were released last week for September. Headline CPI remained steady with the previous month’s reading of 3.7% on a year-over-year basis. Excluding food and energy costs, core CPI fell to an annual rate of 4.1%, down from August’s 4.3% reading and the slowest pace since September 2021. Producer prices surprised to the upside, however, as the core PPI reading showed an annual increase of 2.7% for September, ticking up from August’s 2.5% reading.

FOMC

Last Wednesday’s release of the FOMC’s September meeting minutes showed a divide among policymakers for the need for further rate hikes. The tone of the Fed shows a change from how high rates need to go to how long they need to hold them higher.

Futures

With the Fed minutes, inflation reports, and geopolitical uncertainty in the Middle East last week, federal funds futures markets began pricing in only a 5.7% chance of a 0.25% rate hike in November compared to a 27.1% chance the week prior according to the CME FedWatch Tool.

Earnings

Earnings season kicked off last week with major US banks starting to report results. Positive earnings surprises from Citigroup, JPMorgan Chase, and Wells Fargo helped boost large-cap value stock performance. According to FactSet, analysts are forecasting Q3 earnings growth for the S&P 500 of 0.4%. If earnings growth is positive this quarter, it would snap the string of three quarters of consecutive earnings declines.

Retail

This week a report on US retail sales will be released for September. Retail sales have remained resilient despite higher inflation as August’s month-over-month sales rose 0.6% and July’s rose 0.5%.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.