Inflation Means that Broken Records Cost More Now

Sep 20, 2022

By Ben Norris, CFA, Securities Research Analyst, Associate Vice President

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Last week stocks had their worst performance in more than three months (2022 has been an historically volatile year so far) and the reasons for the drop are all too familiar. Sometimes I begin to feel like a broken record when I have to write once again that hot inflation and disappointing economic data caused investors to fear a hawkish Federal Reserve and stocks sold off as a result. That is precisely what occurred last week as investors began to handicap what sort of policy move the Fed might make this week. I would wager that it will happen a few more times before 2022 is through. Adding fuel to the fire last week was a rare warning from a company some consider a bellwether for the global economy – that we may be in for a deep global recession. All told, the S&P 500 (SPX) ended the week 4.7% lower. The Dow Jones Industrial Average (DJIA) lost 4.1% while the Nasdaq (COMP) Composite fell 5.5%.

Last week began on a promising note as the market notched its fourth positive day in a row Monday as Energy and Technology stocks rallied. Investors were hopeful that Tuesday’s Consumer Price Index (CPI) reading would be an encouraging one following several disappointments prior. At the same time, reports of Ukrainian forces regaining a large amount of territory from Russia was viewed positively by markets as the ongoing conflict still has the potential to move markets. SPX gained 1.1% as all 11 sectors finished in positive territory.

Saying Tuesday was a rough day for investors feels like an understatement. Stocks saw their worst one-day performance in more than two years. DJIA recorded its seventh worst trading day of all-time while COMP recorded its fifth worst. Each of the 30 stocks in DJIA finished lower leading the index to lose 3.9% by the time the closing bell rang. SPX lost 4.3% with Technology and Consumer stocks leading the move lower. Finally, COMP, which is heavily exposed to the Technology sector lost 5.2%. The CBOE Volatility Index (VIX), which is colloquially referred to as the “fear gauge” and measures the expected volatility of the S&P 500 spiked 14% higher. Higher means more expected volatility or more fear in this case. As you might have guessed by now, the CPI numbers released on Tuesday were not encouraging.

Expectations were that inflation (CPI) would come down slightly in the latest reading signaling that the recent moves by the Fed and lawmakers to get inflation under control had started working. In reality, the data showed that headline inflation increased 8.3% compared to the prior year, which was 0.3% higher than expected. Core CPI, which strips out categories like food and energy costs, increased 6.3% and saw a month-over-month acceleration. There weren’t many positive takeaways from the news and investors who were hopeful that the data might provide some cover for this week’s Federal Reserve policy meeting were left disappointed. Prior to the CPI release, the market was hopeful that the Fed would settle for a 0.5% interest rate hike this week. Those expectations have quickly changed as the consensus expectation is that the Fed will go ahead with another 0.75% hike and there is a minority that think the Fed will press forward with a full 1.0% increase. We will find out Wednesday.

The rest of the week didn’t provide much relief following Tuesday’s rout. Wednesday was a relatively quiet day with stocks finishing marginally higher, led once again by the Energy sector. Crude oil prices rose on supply concerns and in turn boosted the sector. In contrast, higher interest rates and poor sentiment weighed on the Real Estate sector. SPX gained 0.3% for the day. Thursday took an unexpected turn when global shipping and logistics company FedEx released a slashed full-year financial forecast. Paired with the downgraded outlook were comments from the CEO indicating that FedEx expected the global economy to enter a recession in the coming year. Investors view the CEO of FedEx as someone who is uniquely qualified to comment on the state of the global economy given FedEx’s position in shipping goods globally. The candid nature of the comments also led to concerns about  what the coming third -quarter earnings season might have in store for the rest of the market. There was some positive economic data released Thursday that was overshadowed by the FedEx saga. SPX finished the day 1.1% lower.

Friday saw another session finish lower, although it wasn’t quite as bad as Tuesday or Thursday. The University of Michigan Consumer Sentiment index came in with its best reading in five months on Friday but that could be short-lived by the time next month’s data is released. SPX declined 0.7% as stocks that could be affected by the same conditions that FedEx warned about were punished.

Looking ahead, the Federal Open Market Committee meeting on Tuesday and Wednesday will be the highlight of this week’s economic news.

Date Report



Monday 9/19/2022 NAHB Home Builders’ Index (Sept.)



Tuesday 9/20/2022 Building Permits (SAAR, August)



Housing Starts (SAAR, August)



FOMC meeting begins
Wednesday 9/21/2022 FOMC policy statement and Jerome Powell news conference
Existing Home Sales (SAAR, August)



Thursday 9/22/2022 Initial Jobless Claims



Continuing Jobless Claims


Leading Economic Indicators (August)



Friday 9/23/2022 Manufacturing PMI



Services PMI




Links to previously published commentaries can be found at Investment Insights/Weekly Market Commentary/Market