Economy
- U.S. equities lost ground for the week ending October 14 amid significant volatility resulting from investors’ ongoing concerns regarding inflation and Federal Reserve (Fed) monetary policy. The September inflation report, which the Department of Labor released on October 13, initially triggered a sharp selloff in stocks. However, the market quickly recovered, with the S&P 500 Index gaining 2.6% after falling 2.5% earlier in the day. It appeared that investors may have engaged in some “bargain-hunting” following the prolonged downturn in stock prices on a year to date basis.
- The U.S. Consumer Price Index (CPI) increased 0.4% and 8.2% in September and for the previous 12-month period, respectively. Core inflation, which excludes volatile food and energy prices, rose 0.6% and 6.6% for the month and year. Higher housing and medical care costs were the primary contributors to the increase in the CPI in September, offsetting declines in prices for used cars and trucks, and apparel. Additionally, the energy index dipped 2.1% for the month, fueled by lower gasoline prices.
- The larger-than-expected rise in inflation led to speculation that the Fed will continue to tighten monetary for the foreseeable future. According to CME’s FedWatch Tool, there is a 99% probability that the Federal Open Market Committee (FOMC) will implement another 75-basis point increase in the target federal funds rate at its meeting in November.
- The minutes of the Fed’s meeting in late September, which were released this week, noted that the FOMC members “continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives,” which includes a target inflation rate of 2%.
Stocks
- U.S. equities were in negative territory. Financials and health care were the top performers, while consumer discretionary and information technology lagged. Value stocks led growth stocks and small caps beat large caps.
- Global equities closed lower for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased to 4.02% during the week.
- Global bond markets were in negative territory this week.
- High yield bonds led, followed by global corporate bonds and global government bonds.
