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Equity Markets Flat Following CPI and Retail Sales Data; Investors Await Fed Decision
Equities markets were relatively flat last week as investors digested an uptick in inflation and resilient retail sales. Global equities (represented by the MSCI All Country World Index) were up 0.52%, and domestic stocks (represented by the S&P 500 Index) were down -0.12%.
The Consumer Price Index released last week showed an acceleration of headline inflation. CPI rose 0.6% month-over-month and 3.7% on an annual basis for August. This was a jump from July’s monthly and annual rates of 0.2% and 3.2% respectively. Higher energy prices contributed heavily to the monthly increase. However, core CPI (excluding food and energy) continued its disinflationary path on an annual basis dropping to 4.3% from 4.7% the month prior.
Retail sales data for August remained resilient showing that the consumer has still been willing to spend. For the month, retail sales rose 0.6%, higher than consensus estimates of 0.1%. However, energy prices also affected the retail sales number as stripping out gas sales would bring the increase to just 0.2% for the month.
The CBOE Volatility Index (VIX), a measure of short-term US equity volatility, fell last week to the lowest level since the beginning of the pandemic. Year-to-date, the VIX has fallen around 35% while the S&P 500 price level has risen nearly 16%.
This week the US Federal Reserve will hold its two-day policy meeting with a decision around their benchmark interest rate to be announced on Wednesday. The Fed has made 11 interest rate hikes since March 2022 with their current target Fed Funds rate range being 5.25-5.50%. Although a hotter-than-expected CPI print was released last week, markets heavily expect the Fed to keep rates steady this month and are pricing in around a 60% probability of the rate to stay unchanged through the end of 2023 according to the CME FedWatch Tool.
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.