The major stock market averages fell sharply last week – the Dow Jones Industrial Average dropped 4.1% to 30,822 – the Standard & Poor’s 500 Index shed 4.8% to 3,873 – while the NASDAQ Composite tumbled 5.5% to 11,448. Primary factors behind the decline included worse-than-expected data on inflation, along with commentary citing economic/global weakness and a surprise profit warning from FedEx, which is widely considered to be an economic bellwether.
Last Tuesday was the worst day of the week for the stock market, with the Dow falling over 1,200 points (nearly 4%), after August inflation numbers came in higher-than-expected. The Consumer Price Index rose 8.3% on a year-over-year basis, while core CPI which excludes volatile food and energy prices rose .6% from the prior month. Investors are now worrying the Federal Reserve may have to raise and keep interest rates higher, and for longer, to fight this high inflation.
The Federal Open Market Committee meets this week, with its policy announcement due on Wednesday, followed by Chair Powell’s press conference. Current expectations are the Fed will raise rates ¾ percentage points. The CME FedWatch Tool indicates an 86% probability for a ¾ point hike, and a 14% probability for a full percentage point hike. Following the latest inflation print, markets took any likelihood of a ½ point increase totally off the table.
Away from “bird-watching” (meaning Fed-watching for Hawks and Doves) in the week ahead, we’ll get a look at earnings reports from AutoZone, General Mills, and Costco Wholesale – along with August’s reading on Housing Starts and Existing Home Sales.
Speaking to the broad market drop – as discomforting and unpleasant market declines like this are – remember that recessions and bear markets are normal cycles and inherent in stock market investing – having been with us throughout all market/economic history. We also think it is important during times like these to keep in mind that investing is a long-term marathon, not a short-term sprint!
All the best – Southport Station Financial Management, LLC