Market Commentary

Weekly Market Commentary September 17, 2018

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Markets put in a strong performance last week as U.S. inflation came in below expectations, trade concerns temporarily abated and technology stocks rallied. The S&P 500 climbed 1.2%. Global stocks rallied as Japanese stocks rose sharply, pushing the MSCI ACWI to a 1.3% gain. The Bloomberg BarCap Aggregate Bond Index dropped 0.1%.


Key points for the week

  • Stocks edged higher on positive inflation and trade news.
  • Consumer inflation rose 2.7%, which was below expectations.
  • The Federal Reserve is expected to raise rates next week.

Economics

The most important data release last week was the U.S. Consumer Price Index (CPI). U.S. inflation reports remain a central source of information for our understanding of the market. Inflation data affects how quickly the Federal Reserve raises rates and provides insight into whether the economy is growing faster than its long-term capacity. Inflation reports also indicate whether tariffs are spurring price increases and pushing prices higher.

August’s CPI showed inflation concerns remain moderate. The CPI increased 0.2%, while core CPI, which excludes food and energy, increased by only 0.1%. The year-over-year CPI increase came in at 2.7%, much lower than last month’s 3%+ increase. All metrics came in under economists’ expectations, showing a moderation in prices.

Tariffs had many people thinking inflation would continue to climb higher and pressure the Fed to increase rates more rapidly. This report may ease their concerns as tariffs have yet to make any real impact on the broader U.S. economy. However, the Fed is still expected to raise rates next week. The solid economic growth continues to give the governors opportunities to gradually increase rates.


Fun Story

South Koreans pack on weight to thwart conscription

All men in South Korea are required to complete at least 22 months of military service before the age of 28. This is dependent upon passing a physical exam; if he fails, he is exempt from service or must complete alternative work. Twelve student singers decided to take their fate into their own hands by binge eating pizza and hamburgers five times a day in an effort to fatten up and fail the physical exam. They were hoping for community service, so they would still have time to sing — for their dinner, presumably — after work.


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