The major indexes extended their “relief rally” on Monday, as traders awaited the latest inflation reading.
Market sentiment appeared to turn positive on hopes that the worst of the recent spike in inflation may be behind us. That theory is being tested with today’s release of the August CPI (Consumer Price Index) report, which showed that prices increased 8.3% year over year last month and were up 0.1% versus July. The consensus had been calling for prices to be up 8.1% versus 2021 and down 0.1% compared to July. Looking at the “core” number, which excludes volatile energy and food costs, prices were up 6.3% over the last 12 months, and 0.6% compared to July.
The report is important, as it’s the last reading of inflation ahead of the Federal Reserve’s meeting next week. The consensus was already calling for another 0.75 percentage increase in the lead bank’s overnight lending rate, with further increases expected at the Fed’s next two meetings in November and December. It will likely take several months of favorable pricing reports before the Federal Reserve begins easing up on the monetary brakes. Until then, stocks are likely to remain volatile depending on developments on the inflation front.
As we approach the start of today’s session, U.S. stock futures, which had been pointing to a strongly positive open for the major stock indexes, have reversed course and are now suggesting the day will begin with a sharp drop. Elsewhere, Asian markets were largely up overnight, while stocks in Europe have dropped into negative territory. Meanwhile, oil futures have also eased back, falling modestly to around $87.50 a barrel.
The economic calendar for the rest of the week includes August retail sales, industrial production, and capacity utilization, among others, all due out Thursday. However, none of these reports are expected to move the needle much in terms of investor sentiment.
Summing up Monday’s action, the Dow Jones Industrial Average advanced 229 points, or 0.7%, while the S&P 500 tacked on 43 points (1.1%), and the tech-heavy NASDAQ made the biggest gain, rising 154 points, or 1.3%. Al of the major market sectors were solidly in the green, led by energy (+1.8%), technology (+1.6%), and consumer discretionary (+1.4%) issues.
– Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
