Another High Inflation Report Calms Markets
- After several strong consecutive weeks, markets mostly pulled back last week. We saw global markets (represented by the MSCI All Country World Index) flat and domestic stocks (represented by the S&P 500 Index) down -0.3%. We saw emerging markets (represented by the MSCI Emerging Markets Index) lead the way up 1.7%.
- The highlight of economic news last week was the inflation report. The headline and core consumer price indexes (CPI) came in above expectations at 6.2% and 4.6%, respectively. As a reminder, these monthly readings are year-over-year figures, which measure consumer prices for the month of October 2021 versus the same prices in October 2020. Additionally, headline CPI includes both energy and food prices, while core CPI does not, since those are very volatile factors.
- In line with this inflation report, the University of Michigan consumer sentiment report fell to its lowest level in a decade. The primary reasons for declining consumer sentiment, according to the report, are inflation concerns around home, vehicle, and durable goods prices.
- For the upcoming week, we’ll get a report on retail sales, which gives us some context on the current status of consumer spending.
- I think the below chart from Natixis offers a good perspective on the types of categories driving inflation today. As you would expect, much of the recent rise in prices is driven by bottlenecks in supply chains and high consumer demand. We expect several of the major categories that are driving rising prices to ease over the course of the next several months. Some of these areas that we expect to subside are automobile and energy prices. It won’t happen over the course of one month, but indications from automobile executives on their recent earnings calls indicate improving supply chains. On the other hand, we would expect areas like housing and education costs to remain elevated.
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.