The futures markets began in the red this morning ahead of the August Consumer Price Index (CPI) report. The figures show headline prices were up 0.2% in August or up 2.5% for the past 12 months. Traders widely expect this to be a key input into the Federal Reserve’s decision-making policy at its September meeting, where it will decide whether to cut interest rates by 25 or 50 basis points. We believe the Federal Reserve looks more at core consumer prices, which take out the more volatile food and energy constituents. This showed that prices were up 0.3% in August, and 3.2% over the past year, caused by an increase in lodging costs and airline fares. The core numbers show a bit higher level of inflation than the market had expected, possibly tending to take a 50 basis point reduction off the table next week. All told, the equity futures were mixed to down slightly, suggesting a lackluster start to the trading day.
The markets were higher in the early portion of Tuesday’s trading session before falling a bit later in the morning. However, the major indices recovered the early decline and ended near the highs. Overall, the S&P 500 increased 24 points (up 0.45%), and the NASDAQ rose 141 points (up 0.84%). However, the Dow Jones Industrial Average fell by 93 points (down 0.23%), hurt by a notable decline in several large financial institutions yesterday including JPMorgan Chase (JPM), Goldman Sachs (GS), and American Express (AXP). Market breadth was rather uneven, with advancers only barely outpacing decliners on the day. Looking at different sectors, REITs were amongst the best performers, while energy issues were amongst the weakest.
In commodity news, oil prices fell yesterday as concerns of an oversupplied market took hold. This caused oil prices to approach a three-year low.
Elsewhere, U.S. Treasury bond yields were largely lower, with short-term rates falling more than those with longer durations. In fact, many Treasury bond yields hit their 52-week lows in recent days, suggesting significant movement into the asset class (Note that yields move inversely to demand and fall due to greater amounts of buying.)
The Chicago Board Options Exchange Volatility Index, or VIX, commonly known as the fear index, declined yesterday after several days higher as traders moved away from purchasing options protection.
Several economic reports will be released in the days ahead. These include initial jobless claims and the core- and con-core Producer Price Indices (PPI) on Thursday. On Friday, the import price index will be released. Elsewhere, a few earnings reports are slated for release over the rest of the week. As such, most eyes will be on inflationary data in the days ahead. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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