Market Update: September 16, 2022

The market did not hold up as we were hoping for. After a strong rally late last week, a very weak Tuesday resulted in a fairly significant pullback and that higher low support point did not hold up indicating that the path of least resistance remains lower.

The big news item of the week came last night when the FedEx CEO issued a revenue and earnings warning, sending the stock tumbling over 20% pre-market this morning. The global shipping giant cited a significant reduction in shipping volumes in recent weeks forcing management to pull guidance for the year. The CEO even went as far as saying that he believes we are entering into a global recession. Because FedEx is tied directly to the well being of thousands of other businesses around the globe, he may be right.

In light of the results elsewhere in the market, specifically with the inflation reading we received on Tuesday, I thought I’d spend a little time diving into the results and ramifications. On Tuesday, we received our August CPI reading which showed a second year-over-year drop in the inflation rate. As a reminder, inflation peaked in June at 9%, declined in July to 8.5%, and is now at 8.3% for the month of August.

However, the market responded negatively to the results and here’s why. The CPI is measured in two ways: year-over-year and month-over-month. The year-over-year results showed a drop from 8.5% to 8.3% as mentioned earlier. However, the month-over-month results actually showed a slight increase in inflation of .1%. In other words, prices actually picked up in August over the July prices.

Furthermore, Core CPI, consumer prices that are typically stickier and thus more indicative of true changes in pricing in the economy, actually increased year-over-year.

The end result was a significant decrease in the market on Tuesday primarily because this justifies further rate increases from the Federal reserve for the remaining months of the year. The Fed has indicated that until they can adequately conclude that prices are either stabilizing or even falling, they will continue to increase rates until they do.

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Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved September 16, 2022, from FactSet Database.

2.FactSet Research Systems. (n.d.). Total CPI Y/Y% (Interactive Charts). Retrieved September 15, 2022, from FactSet Database.

3.Bureau of Labor Statistics. US Department of Labor. News Release September 13, 2022 “Consumer Price Index – August 2022”. Retrieved from www.bls.gov/cpi

4.FactSet Research Systems. (n.d.). Core CPI Y/Y% (Interactive Charts). Retrieved September 15, 2022, from FactSet Database.

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The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living.

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