The preacher man says it's the end of time

And the Mississippi River, she's a-going' dry

The interest is up and the stock market's down

And you only get mugged if you go downtown

‘A Country Boy Can Survive’

-Hank Williams Jr.

It was a drubbing for the record books yesterday. The hopes which were built up over four strong sessions were gone in a flash.

• S&P 500 (SPX) -4.32%
• Nasdaq Composite (Comp) -5.16%
• Dow Jones Industrial Average (DJI) -3.94%
• Russell 2000 (RUT) -3.91%
• Nasdaq-100 (NDX) -5.54%
• West Texas Intermediate (WTI) -0.54%
• Gold (GLD) -1.03%
• U.S. Dollar (USDXY) +1.58%

I’m not sure why I couldn’t stop humming this country classic yesterday, but it felt appropriate. That Consumer Price Index (CPI) report was remarkable, catching just about everyone off guard. There are parts of the report that are truly worrisome, especially food inflation, but also the notion the Fed can’t hammer inflation into submission without flatlining the economy. 

I still do not think the Fed will have the gumption to go all the way, but they will stay the course near-term.

Note: if we were still using the 1980 methodology, it would have grown by 16%.

Heat Map

Nowhere to run or hide as only five stocks in the S&P 500 finished the session higher.

The carnage in Tech (XLK) stands out as Apple (AAPL) lost $154 billion in the market cap alone, and the S&P 500 shed $1.6 trillion bucks. But, other than that, how was the play, Mrs. Lincoln?

Keeping it One Hundred

By the end of the session, the CME Fed Tracker was modeling a 33% chance of a 100-basis points (bps) hike. It’s not farfetched and could happen if we see a sharp spike in inflation expectations from the Michigan Consumer Sentiment survey on Friday.

There is no doubt that a lot of yesterday’s selling was on autopilot. No buyer was going to stand in the way, and a lot of ground had just been covered on the hunch that the CPI report would reveal less inflation.

It wasn’t just Energy (XLE) prices but also other signs, including ‘prices paid’ components in manufacturing and service Purchasing Managers Index (PMI) reports.

There were other signs as well, but core inflation erupted +0.6% month-to-month, which is extremely rare and very worrisome.

This is real life.

As for the market, key support points are still in place, and it’s hard to argue we aren’t near-term oversold. But the answer is to be nimble and to be cool.

NASDAQ- 100

The NASDAQ-100 (NDX) suffered one of its worst sessions ever as every single component finished the session in the red column.

A great report from Sentiment Trader suggests wild gyrations over the next week, but the market will be significantly higher 12 months from now, with a median gain of 21.2%. This is a major shake-up, but don’t get shaken out.

Portfolio Approach

There are no sector weighting changes in our Hotline Model Portfolio.

Today’s Session

Producer inflation data was a mixed and maybe even a sigh of relief considering yesterday’s shocker.

What’s concerning, however, is core was higher year over year and month to month.  This is one of the reasons the market sold off so much yesterday.

Core CPI that comes in 0.3% or more than consensus mostly results in a down session (see work from Bespoke).

It’s going to be very interesting to see if the initial bounce will gain traction. 

Comments

Why would anyone expect the CPI to come in lower? Have you guys been grocery shopping lately? How about rents?. I think this was an overreaction as usual. Alfredo Martinez on 9/14/2022 10:14:23 AM

What about the hundreds of Billions that were appropriated for COVID but have not been spent yet? Isn't there a high chance that these funds could spike inflation further? Paul Krueger on 9/14/2022 1:28:38 PM

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