Week in Review: September 13, 2024

September 16, 2024

Recap & Commentary

A week after the S&P 500 experienced its worst week since March 2023 due to concerns about weakening economic data, markets rebounded with the S&P 500 having its best week since November 2023. Relatively mild inflation data and increasing expectations that the Fed might cut rates by 0.50% at this week’s Federal Open Market Committee (FOMC) meeting helped push markets higher.

Since Fed Chair Jay Powell effectively assured investors in late August that the Fed will cut rates at its upcoming September meeting, investors have debated the size of the cut. The general expectation has been a 0.25% cut in response to slowing inflation and labor market data. Some investors argue that a larger cut of 0.50% could unsettle markets, suggesting the Fed might be more concerned about slowing economic growth than previously thought. However, in the past week, investors have become more comfortable with the idea of a 0.50% cut, assuming the Fed’s rationale is to act proactively in response to weakening economic and labor market data. This was reflected in market odds, which ended the week evenly divided between a 0.25% and 0.50% rate cut, up from 30% odds for a 0.50% cut a week earlier.

Along with Powell’s post-meeting press conference, investors will be closely watching the Fed’s updated economic projections, including the “dot plot” forecast of future short-term interest rates. The combination of commentary and projections will likely influence the near-term direction of both equity and fixed income markets.

Economic Commentary

The last inflation readings before the Fed’s September meeting were the focal point of the week’s economic calendar. Headline consumer inflation (CPI) increased by 0.2% in August, matching expectations and maintaining the same pace as July. On a yearly basis, headline inflation rose 2.5%, down from July’s 2.9% annual rise. Shelter prices remained the main contributor to inflation, increasing by 0.5% from the previous month and 5.2% year-over-year. Significant declines were noted in energy prices and the cost of used cars and trucks, which fell by 4.0% and 10.4%, respectively, over the past year. Core CPI, excluding food and energy, rose slightly faster than anticipated, up 0.3% from July. On an annual basis, core CPI remained steady at 3.2%, unchanged from the previous month.

Producer prices (PPI) increased by 0.2% in August and 1.7% over the past year. Core PPI rose by 0.3% for the month and 2.4% year-over-year.

Consumer sentiment improved slightly in early September, reflecting better views on current and future economic conditions. Consumers’ one-year inflation expectations dipped by 0.1% to 2.7%, aligning with the downward trend in prices. However, five-year inflation expectations rose slightly, from 3.0% to 3.1%.

Weekly jobless claims saw a minimal increase, rising by 2,000 to 230,000. With increasing concerns about the strength of the labor market, this data series will likely receive more attention as a forward-looking indicator.

Of Note

Former European Central Bank President Mario Draghi revealed his plan for increasing EU competitiveness which included more coordinated industrial policy, better regulation, and investment of ~$850B/year.

Market Indices   (As of 09/13/2024)

• Retail Sales
• Housing Starts
• Existing Home Sales
• Industrial Production
• Weekly Jobless Claims