Inflation Data Relatively Tame As Fed Sends Mixed Signals

Another mixed week for markets after a Friday pullback.

Many thought the conflict in the Middle East would move markets last week, but that wasn’t the case. Instead, markets, per usual, were affected by Fed speeches. Early in the week, Fed members alluded to the likelihood of no rate hike for the remainder of the year and that they were not seeing signs of a recession ahead. Equities moved higher as a result. Later in the week, Some Fed members less confident that rate hikes were over and equities moved lower. Inflation for September came in just slightly higher than expected, but relatively calm when measured on a year-over-year basis. In fact, if you strip out energy costs, inflation was flat month-over-month.

After the release of the inflationary data, futures on the Fed rate decision in November moved to 93% probability of no rate hike and 70% probability of no rate hike in December.

The top 7 stocks in the S&P 500 Index have risen more than 100% on average over the past 200 days, but the index itself is only higher by a little more than 14% year-to-date. In fact, over the past two years, the S&P is up a little more than 1%, making it hard to believe that over a two-year period equities are barely above flat. This week the blackout period for corporate buybacks ends and eyes will be on the forward guidance as a plethora of 3rd quarter earnings releases hit the market. Last week, all five banks/financials—Wells Fargo, JP Morgan, Citigroup, PNC, and Blackrock –reported earnings above estimates. We still can’t rule out news on the Middle East affecting markets.

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