The dog days of summer are coming to a close and many of you may be traveling to squeeze in some vacation time before the cooler Fall weather begins – already the days are getting shorter. And this Fall will be busy for the capital markets as we will see another more read on inflation and jobs before the September Fed meeting. The CPI (+8.5%) & PPI (+9.8%) released this week were essentially flat to their June readings but still very high relative to the Fed’s target rate of 2%. Also, the fall in oil and gasoline prices contributed greatly to the unchanged readings meaning prices continue to rise on everything else.
The calendar for the rest of August is relatively open so the market is now left to trade on its own devices until the August jobs report released in early September. The last jobs report was quite strong but the household survey within that report showed +303k jobs were added from part-time workers which may be a sign of the consumer being stretched and needing a second source of income. Also, the participation rate dropped which is not something you normally see when payrolls increase by +528k.
The S&P 500
They say don’t fight the Fed and we will see a rate increase of 50-75bps in September and quantitative tightening to the tune of $95B monthly that begins at the end of this month. As the bears have been on vacation since mid-June, the S&P continues to rebound through the 50% retracement and is likely to challenge the 61.8% at $435 (4350 area for the index). However, there is an overbought condition developing and the move over the past two weeks looks vertical on this chart so a pullback is likely to develop soon.
There has been talk of peak inflation and the Fed backing off at their next meeting but keep in mind that divesting $95B monthly will have the same effect as raising interest rates so we may see “double-tightening” in the coming months.
Just a quick note this week as we wind down the summer but there should be a lot more to review in the coming weeks.
Paul J. McCarthy, III
President – Kisco Capital