Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the week at a level of 5626, representing an increase of 4.06%, while the Russell Midcap Index moved 2.80% last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 4.39% over the week. As developed international equity performance and emerging markets were higher, returning 1.22% and 0.80%, respectively. Finally, the 10-year U.S. Treasury yield moved lower, closing the week at 3.65%.
With the much-anticipated Federal Reserve meeting scheduled for Tuesday and Wednesday of this week, market participants spent last week debating whether the first interest rate cut in over four years will be 0.25% or 0.50%. Factored into this ongoing debate were two important inflation data points. Both the Consumer Price Index and the Producer Price Index were closely examined as the final data points that will be included in the Fed’s analysis to determine ongoing monetary policy.
The Consumer Price Index (CPI) for August was released by the Bureau of Labor Statistics (BLS) last Wednesday. The index, a broad measure of the costs of goods and services, increased 0.2% for the month. This reading matched the consensus estimate. On an annual basis, the index increased 2.5%, representing a decline of 0.4% from July and the lowest increase since February 2021. Core CPI, which excludes food and energy prices, increased 0.3% during August and was slightly higher than the 0.2% estimate. The core inflation rate on an annual basis was 3.2%, unchanged from the prior month and in line with estimates.
The August Producer Price Index (PPI) for final demand was also released last week and rose 0.2%, slightly more than expected amid higher costs for services. In the 12 months through August, the PPI increased 1.7% after advancing by 2.1% in July.
Following these two data points, the market was full of monetary policy experts expressing their opinions concerning the size of the likely interest rate cut following the Federal Reserve’s September meeting this week. Many opinions suggested that the core inflation numbers would cause the Fed to be cautious and cut rates by 0.25%, as opposed to 0.50% or higher.
However, the case for a larger rate cut was made by former New York Federal Reserve President Bill Dudley, stating, “I think there’s a strong case for 50, whether they’re going to do it or not.” Dudley believes that rates were currently 1.50% – 2.00% above the so-called neutral rate for the U.S. economy, where policy is neither restrictive nor accommodative. “So the question is: Why don’t you just get started.”
Best wishes for the week ahead!
CPI and PPI data is sourced from the Bureau of Labor Statistics. Economic Calendar Data from Econoday as of 9/13/24. International developed markets are measured by the MSCI EAFE Index, emerging markets are measured by the MSCI EM Index, and U.S. Large Caps are defined by the S&P 500 Index. Sector performance is measured using the GICS methodology.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.