All eyes were focused on Consumer Price Index (CPI) data released last Thursday, as traders wanted to see the next chapter of the inflation narrative. The second trading week of (the usually volatile) October is in the books, and it was a good one for major stock indexes.

Summarizing last week’s trading, the large-cap S&P 500 gained 1.11%, the Nasdaq 100 increased by 1.18%, and the Dow Jones Industrial Average increased by 1.21%.

Mixed Inflation Data

Data showed a slight warming in inflation on the consumer level, with a monthly increase of 0.2% — a tick higher than estimates. The month brought a 2.5% year-over-year inflation rate, which was the lowest reading since February 2021 but still a tick higher than Dow Jones consensus estimates for 2.4%.

Core CPI, which excludes food and energy, tacked on 0.3% for the month versus expectations for 0.2%. The annual core CPI rate was at 3.3%.

Once again, shelter and food prices were the main culprits for the rise in overall consumer inflation, accounting for more than three-quarters of the rise in the all-important consumer inflation metric.

Janky Inflation Data?

If you are a fan of financial buzzwords, this one’s for you. Let’s add “janky” to the list!

In an interview last week, Atlanta Federal Reserve President Raphael Bostic mentioned that it is important to see if individual data points form a larger pattern or if there are just some “janky” data points (in reference to the September CPI data and jobs reports coming in hotter than expected).

Bostic, a voting member of the Federal Open Market Committee (FOMC), mentioned that the choppiness in recent data ”is along the lines of maybe we should take a pause in November” when referring to rate cuts.

So far, traders interpreted the warmer-than-expected CPI data in a “janky” way as well, with traders increasing their bets on a rate cut. Investors may be banking on the Fed continuing with its plans to continue to cut rates, despite inflation showing some quick signs of inching higher. Since the Fed just started with rate cuts about three weeks ago, the consensus may be for the Fed to stay the course and not deviate based on a few data points.

It is a dynamic time now. It’s October, data is up for continued interpretation, and the election is right around the corner.

CPI Market Reaction

Major U.S. stock index futures initially sold off upon the data release at 8:30 a.m. ET and traded lower for about half of the New York trading session, as the report indicated a run-of-the-mill 25-basis-point cut at the November meeting. However, the S&P 500 held its lows made upon the data release and closed the day very close to where it was before the CPI data release.

It was an interesting reaction to the data, as market participants figured out how a higher tick inflation print could affect the Fed at the next meeting. So, after an initial stumble reaction to the data and digestion, the S&P 500 found its footing on the day of the data release.

Producer Price Index (PPI) Data

The day after CPI was released, wholesale pricing showed no change in inflation, coming in below Dow Jones estimates for a 0.1% monthly rise. Major stock indexes reacted positively to the data and continued their upward journey, having a positive day to close out last week.

The most recent data for September puts the annual PPI rate at 1.8% and is constructive in the inflation easing theme.

This Week

October is in full swing, and the major U.S. equity markets have done well so far, as we enter the meat of the month. With CPI and PPI out of the way for October — and data showing a slight uptick in consumer pricing combined with flat producer pricing — attention this week turns to retail sales data in an otherwise quiet economic data release week.

Perhaps more time will need to pass for the markets to digest the recent inflation data.

Thank you for reading this financial market update!

Sincerely,

The Trademark Capital® Team

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