Inflation Pains – Monday Morning Market Memo – June 13, 2022

Inflation Pains – Monday Morning Market Memo – June 13, 2022

The Bureau of Labor Statistics reported the most recent inflation data last Friday morning – the Consumer Price Index rose 8.6% in May from a year ago, the largest jump in inflation since 1981 – with price increases for food, shelter, and gasoline being major contributors to the overall increase.  The stock market did not like it, as all three major indices suffered notable losses following the report, with the Dow Jones Industrial Average falling nearly 900 points (2.7%), the Standard & Poor’s 500 Index losing 2.9%, and the tech-heavy NASDAQ Composite shedding 3.5%.

For the week as a whole – the Dow lost 4.6%, the S&P 500 dropped 5.1%, and the NASDAQ Composite tumbled 5.6%.  May’s hot inflation numbers threw cold water on hopes inflation was going to ease.  Besides the obvious pain caused by inflation, Wall Street concerns also center around the “cure” for inflation – which is a hawkish Federal Reserve Bank.

The Fed was already expected to continue with a sequence of interest rate hikes, and this data not only reinforces those expectations, but also increases the possibility of larger and quicker rate hikes.  Financial markets are worried these interest rate hikes could tip the economy into a recession.

According to the CME FedWatch Tool, there is now about a 95% chance the Fed’s target rate will be 3+ percent by the end of the year, compared to the .75% to 1% currently.  We’ll get a look at this trend during the week ahead, as the Fed concludes its two-day policy meeting on Wednesday afternoon, it is widely expected they will raise their benchmark interest rates by ¾ percent and this expectation is what caused the selloff in the market yesterday.  Be ready for an eventful and volatile week.

As always, don’t hesitate to contact us with any questions or to set up a meeting.

All the best – Southport Station Financial Management, LLC