Week of September 12, 2022

Last week saw solid performance in U.S. equities, capped off with a strong rallies Thursday and especially Friday.  On Friday, the S&P 50 gained 1.57%, its third straight increase, and ended with a 3.7% gain for the week.  This makes for the S&P 500’s best week since July.  Big gains for technology companies pushed the NASDAQ to a 2.1% gain, as the Dow Jones rose 1.2%.  Both the NASDAQ and Dow notched their first weekly gain in four weeks.

This is busy week on the economics calendar as the U.S. Labor Department will release its report on consumer prices (CPI) for August on Tuesday and a report on wholesale prices (PPI) on Wednesday.  On Thursday, investors will get an update on retail sales for August.

Economists surveyed by Bloomberg are expecting headline CPI to rise 8.1% over the past year in August, a moderation from the 8.5% increase in July.  CPI is expected to show that prices fell 0.1% from July to August, primarily due to continued easing in energy prices.  If this occurs, it will mark the first monthly decline since May.  Core CPI, which strips out volatile food and energy prices (which is closely tracked by the Fed) is expected to rise to 6.1% over the same month last year, and more than the 5.9% year-over-year increase reported for July.

Tuesday’s CPI report is likely to be vital in the Fed’s decision on the extent of the increase in interest rates when they meet later this month.  “In the run-up to the Fed’s next policy announcement on September 21, the release of August’s consumer price data could be pivotal in determining whether the Fed will follow the European Central Bank and Bank of Canada with a 75 basis point hike or opt for a smaller 50 basis points,” said Capital Economics Chief U.S. Economist, Paul Ashworth.

As always, the cost of energy remains a front-burner issue.  Last week alone, U.S. crude oil prices rose 3.9%, helping push up energy sector stocks.