Weekly Market Commentary October 7th to October 11th 2024

Last week we saw the first set of inflation data since September’s 50 basis point rate cut. Since inflation is controlled with high interest rates, the Fed’s decision to cut is another way of saying that inflation is no longer a threat. Therefore, tame inflation readings will be critical for the Fed’s soft-landing scenario. Fortunately, the Consumer Price Index (CPI) was mostly in line last week, with a 0.2% increase in the month and a 2.4% increase for the year. When excluding food and energy prices, Core CPI increased 0.3% in the month and 3.3% for the year. Overall, inflation came in slightly higher than expected but was mostly unchanged from the prior readings.

Inflation data for producers was also released last week through the Producer Price Index. PPI saw no gain in the month but increased 1.8% on the year. Excluding food and energy, Core PPI increased 0.2% in the month and 2.8% for the year. The month-over-month readings were all lower than expected and lower than the prior readings. However, year-over-year were both higher than expected and higher than the prior readings. The markets did not meaningfully react to the news as the results were not significantly out of the norm.

The minutes from the September FOMC meeting were released Wednesday, providing more color on the committee’s decision to cut by 50bps. The decision to make the jumbo cut was supported by the Fed’s view that the risks for higher inflation had diminished while the risks for higher unemployment had increased. The minutes show a range of views on the decision for the aggressive cut in September, but “a substantial majority” supported the decision.

By the final closing bell of the week, the S&P 500 had advanced by 1.0% to 5,811. The Nasdaq Composite also closed higher by 1.0%. As traders interpreted the latest inflation data, the yield on the 10-Year U.S. Treasury rose by 11 basis points to 4.08%, closing the week with a spread over the 2-Year of 12 basis points.

Key economic releases next week include Retail Sales, Industrial Production, Housing Starts and Permits and a slew of Fed Governors will be making the rounds sharing their views on monetary policy.