By Rick Schwerd |
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for
our next update on November 6.
Hot Inflation Reports
This week we received September Consumer Price Index (CPI) and Producer Price Index (PPI) data, both of which were
hotter than expected. Headline CPI came in at 3.7 percent, above August’s 3.4 percent reading and a tenth of a
percent above expectations. Core CPI, which removes volatile food and energy prices, was up 2.6 percent, two-tenths
of a percent higher than the previous month’s level. Increasing energy prices were the leading cause, directly
impacting headline CPI and indirectly for core CPI.
Gasoline prices were up 9.1 percent during September and are up 34 percent over the past year. Airline costs, which
are classified under transportation services, a component of core CPI, were up 22 percent over the past year. Motor
vehicle maintenance and repair prices were up 5.8 percent year-over-year and hospital services increased 5.6
percent, also contributing to higher inflation.
The higher inflation readings increased the chance of a Fed rate hike at its Federal Open Markets Committee meeting
late this month, after the Fed increased rates at its September meeting. Instead of raising rates days before the
midterm elections, we believe the committee is likely to hold off until its December meeting.
Stock Volatility Continues
After hitting new highs just last week, stocks sold off early this week before a sharp reversal higher on Thursday.
The sell-off was particularly focused on tech stocks, with the Nasdaq index falling more than 3 percent from its
high, reached only last Wednesday. This Wednesday was the worst day for stocks in months. The sell-off continued
Thursday before reversing midday as major indexes moved higher. Stocks fell again early Friday.
Concerns over the artificial intelligence trade and higher yields triggered the pullback. The benchmark 10-year U.S.
Treasury yield spiked above 5.32 percent following Wednesday morning’s hot CPI reading but quickly dropped
below 5.10 percent on Thursday.
While major indexes remain close to all-time highs, we continue to see sharp rallies and sell-offs in different
sectors of the market. Tech stocks had been leading indexes higher into last week before their sharp drop, whereas
consumer staple stocks have been rallying this month following a very poor September. The volatility can be
unnerving, but rotations in and out of sectors can help remove froth from areas of the market that may have become
overpriced without bringing down the overall market more sharply.
Decent Start of Earnings Season
According to research provider Earnings Scout, 38 companies have reported third-quarter earnings so far, with 84
percent exceeding earnings estimates, beating expectations by an average of 5.97 percent. However, these same 38
companies had a 92 percent earnings beat rate last quarter, exceeding estimates by an average of 11.36 percent.
This is a relatively small sample size and historically, this quarter’s returns would be considered strong.
However, the slower trend is something we are watching. Earnings season really gets going next week, with the likes
of Meta, Tesla, GE Aerospace, Netflix and Proctor & Gamble reporting.
Enjoy a great weekend, and as always, if you have any questions or concerns regarding markets or your financial
planning needs, please reach out to us at (518) 415-4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a
Senior Investment Officer at Arrow Bank. He oversees individual and corporate retirement plans, personal trusts,
investment management accounts, foundations and not‑for‑profit relationships.