The equity markets were modestly higher for the week but bonds slipped ahead of next week’s Fed meeting. Nothing dramatic either way, though, and a host of economic and political news did little to move the needle much. For example, the auto workers strike and a looming government shutdown were both greeted with a shrug of the shoulders by the markets.
On the economic front, the main report for the week was August's inflation number. It was basically in-line with consensus, although inflation accelerated in August due to a jump in gasoline costs. Specifically, the consumer-price index (CPI) rose 0.6% in August, a noticeably faster pace than in July.
Strip out food and energy, though, and prices rose were up a more modest 0.3%. On an annual basis, prices overall were up 3.7% in August versus 3.2% in July. Annual core inflation edged lower to 4.3% in August from 4.7% the prior month.
So, a mixed picture. Should we be worried that overall prices are rising again, or reassured that core prices continue to decline? The market isn’t sure, hence the muted reaction by both bonds and stocks to the report.
If you had to characterize the consensus view for the next few months, it’s that inflation should continue to drift lower simply because rental inflation is likely to moderate. The bottom panel in the chart below from BCA captures this dynamic – shelter costs are falling and the full impact has yet to be felt in the inflation stats.
Of course, the wildcard is oil. Both brent and WTI crude surpassed $90 a barrel this week.
And interestingly, the type of oil that Saudi Arabia sells surpassed $100.
There’s certainly a geopolitical component to the recent increase in prices given moves by OPEC+. But there’s also a supply piece. U.S. crude oil inventories are running at 40-year lows largely because the Strategic Petroleum Reserve has been run down.
This doesn’t mean prices are going to continue to increase, but it does make the market more susceptible to shocks. And if there is a risk to the relative sanguine outlook for inflation in the months to come, it could very well come from the oil market.
(Other) Charts We Found Interesting
A bullish economic chart - U.S. households cash balances remain elevated.
A bearish economic chart – it’s getting harder and harder to access credit.
Another bullish chart – manufacturing spending in the U.S. is on a tear.
This captures the valuation disparities between the largest of the large-cap stocks and the rest of the market.
Another Fed meeting next week – market is betting on no change in rates.
Fifteen years ago today Lehman Brothers failed. I wonder who bought the sign?
What it takes to feel wealthy in different U.S. cities.
This map shows the relative position of major European cities if they were suddenly moved to Texas. Depending on your point of view, it either shows that Texas is really big or Europe is very small.
Have a good weekend
Chief Investment Officer
Gemmer Asset Management LLC
Published by Gemmer Asset Management LLC. The material presented (including all charts, graphs and statistics) is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The material is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objective, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this material is suitable for their particular circumstances and, if appropriate, see professional advice, including tax advice. The price and value of investments referred to in this material and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or prices of, or income derive from, certain investments. No part of this material may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without the prior written consent of Gemmer Asset Management LLC (GAM). Any mutual fund performance presented in this material are used to illustrate opportunities within a diversified portfolio and do not represent the only mutual funds used in actual client portfolios. Any allocation models or statistics in this material are subject to change. GAM may change the funds utilized and/or the percentage weightings due to various circumstances. Please contact GAM, your advisor or financial representative for current inflation on allocation, account minimums and fees. Any major market indexes that are presented are unmanaged indexes or index-based mutual funds commonly used to measure the performance of the US and global stock/bond markets. These indexes have not necessarily been selected to represent an appropriate benchmark for the investment or model portfolio performance, but rather is disclosed to allow for comparison to that of well known, widely recognized indexes. The volatility of all indexes may be materially different from that of client portfolios. This material is presented for informational purposes. We maintain a list of all recommendations made in our allocation models for at least the previous 12 months. If you would like a complete listing of previous and current recommendations, please contact our office.