Last Week’s Markets in Review: Perhaps Inflation Isn’t Just Transitory

Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the week at a level of 4,471, representing a gain of 1.84%, while the Russell Midcap Index moved 2.34% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 1.47% over the week. International equity performance was also higher as developed, and emerging markets returned 2.42% and 2.18%, respectively. Finally, the 10-year U.S. Treasury yield moved slightly lower, closing the week at 1.59%.

The news cycle for the past week was full of many important economic data updates. For example, the Consumer Price Index (CPI) for September 2021, the minutes from the September FOMC meeting, weekly initial jobless claims, the Producer Price Index (PPI) for September, and Retail Sales data for August were all released. We believe that these, and other critical, data points will serve as guideposts for market and consumer sentiment for the remainder of 2021 and throughout 2022.

To start, the U.S. Bureau of Labor Statistics reported last week that the CPI for September rose 0.4% for the month. On a year-over-year basis, prices had increased by 5.4%. Both monthly and year-over-year actual results slightly exceeded consensus estimates. In addition, the 5.4% annual increase was the highest increase recorded since January 1991. Analyzing the index results more completely, we note that the volatile categories of food and energy accounted for much of the recent increase. As of the end of September, gasoline prices have risen by over 40% from the prior year. The index for all items less food and energy rose “just” 0.2% in September and 4.0% on a year-over-year basis.

Turning to the minutes from the September FOMC meeting, we learned that the Fed is likely to announce the beginning of its plan to taper its monthly asset purchases after their next scheduled meeting in November. It is believed at this time that the Fed’s gradual tapering timeline will last through at least the middle of 2022. The minutes noted that “Participants discussed monthly reductions of $10 billion in Treasury securities and $5 billion in agency mortgage-backed securities.” The minutes also suggested that the detailing of the Fed’s tapering plans would, hopefully, “reduce the risk of an adverse market reaction.” We certainly concur with this sentiment.

As it relates to the current status of national employment, weekly initial jobless claims were released on Thursday showing a fall below 300,000 for the first time since the beginning stages of the COVID-19 pandemic (i.e., March 14, 2020). Claims for the week totaled 293,000, well below the 318,000 claims estimate.

Next up was the release of the Producer Price Index (PPI), another gauge of inflation, which showed prices for final-demand wholesale goods increased by 0.5% in September. The index increased 8.6% on a 12-month basis. Core PPI, which excludes food and energy, increased 5.9% over last year. This increase represents the largest increase since March 1982. With both the CPI and PPI at records levels, the idea that the current inflation is transitory is beginning to be challenged in the minds of many investors.

Finally, retail sales data for August were reported on Friday and surprised many strategists with the continued strength in consumer spending despite mounting inflationary and economic concerns. Retail sales for the month increased 0.7% vs. the consensus estimate that was calling for a decline of 0.2%. In addition, excluding autos, retail sales rose by 0.8% in August, also beating consensus estimates looking for a gain of 0.5%. Retail sales are critical for the continued economic recovery from the COVID-19 pandemic as consumer spending currently accounts for approximately 70% of the gross domestic product (GDP) in the U.S.

Investors should consider all of the data discussed within this market update and many other factors when managing their investment portfolios. However, with so much data and so little time to digest it all, we encourage investors to work with experienced financial professionals to help process all of this information in order to build and manage the asset allocations within their portfolios consistent with their objectives, timeframe, and tolerance for risk. Best wishes for the week ahead!

CPI and PPI data is sourced from the U.S. Department of Labor. Retail Sales data is sourced from the U.S. Census Bureau. Equity Market and Fixed Income returns are from JP Morgan as of 10/15/21. Rates and Economic Calendar Data from Bloomberg as of 10/15/21. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index, U.S. Large Cap defined by the S&P 500. 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.

Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against loss.

Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than the original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.


MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

Investors cannot directly purchase any index.

LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.