Inflation Pressure And The Fed

Key Takeaways

• FOMC Meeting Wednesday
• Interest Rates Pushing To Levels Not Seen In Over A Decade
• Oil Continues Moving Higher

Heading into last Friday, market volatility wasn’t really suggesting anything to worry about and perhaps we’d even have a slow triple witching (expiration of listed options, futures and options on futures). Then again, markets have a way of catching you just when everything seems quiet. The S&P 500 dropped 1.2% and the Nasdaq Composite fell 1.5%. However, despite those losses, markets were relatively unchanged for the week and volatility continues to hover at its recent low levels. The big story this week will be the Fed meeting at the conclusion of which, it’s highly expected interest rates will remain unchanged.

Although markets finished the week flat, September has seen stocks give back some of this year’s gains. The S&P 500 is down about 1.3%, while the Nasdaq Composite is off 2.3%. Shares of Apple
AAPL
have fallen nearly 7% and market darling Nvidia is down 11%. At the same time, we’re seeing an uptick in both interest rates and a surge in oil prices. Two-year yields are at 5.05% and the ten-year is at nearly 4.33%, putting rates at levels we haven’t seen in over a decade.

The jump in interest rates comes as oil continues moving higher, something I’ve been talking about for a while now. Crude oil futures are over $91 in premarket trading and pushing up against their highs for the year. As I’ve said, if there is one thing that can quickly jumpstart inflation, it’s the price of oil. This is something I’ll continue monitoring.

On a related note, as I mentioned above, it’s Fed week. The Federal Reserve Open Market Committee (FOMC) will announce a decision on interest rates, Wednesday. Currently, according to CME projections, there is a 99% certainty rates will remain unchanged this month and 69% they will stay unchanged when the Fed meets again in November. In addition to our own Fed meeting this week, the Bank of England meets on Thursday and Bank of Japan will meet Friday. While I’m not concerned about a surprise rate hike, I will be interested in the comments from Jerome Powell following the meeting for any hint as to what the Fed thinks moving forward.

Elsewhere, United Auto Workers (UAW) are in their fourth day of targeted strikes at the three major automakers. As of this morning, all parties involved appear to still be far apart on any deal. On Sunday, UAW President Shawn Frain rejected an offer from Stellantis for a 21% pay increase and is seeking a 40% increase. Negotiations are scheduled to continue this week.

Today after the close, Instacart is expected to price their IPO as the grocery delivery company seeks a $9B valuation. Shares are anticipated to begin trading tomorrow. Then on Wednesday after the close, we’ll get the latest earnings report from FedEx
FDX
. I’m especially interested in what FedEx is forecasting as we move closer to the holiday season. FedEx is often a good proxy for online shopping. Finally this week, Existing Home Sales are scheduled for release on Thursday. The market for existing homes has been tight with many homeowners opting to stay put rather than face the prospect of taking on a higher mortgage interest rate if they moved. I don’t expect any surprises when those numbers are released. As always, I would stick with your investing plan and long term objectives.

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