This week was marked by a series of economic data releases and significant events that shaped the market, leading up to the important FOMC meeting on September 20th.
Inflation Surges, Driven By Gas Prices
In August, the annual inflation rate in the United States increased for the second consecutive month, reaching 3.7%. This exceeded the expectation of 3.6% and was higher than July’s rate of 3.2%. The Consumer Price Index also rose by 0.6% on a monthly basis, the largest increase since June 2022. The rise in inflation was primarily driven by a significant 6% increase in gasoline prices. Similarly, the Producer Price Index showed strong growth in August, with a 0.7% monthly increase, surpassing market forecasts of a 0.4% uptick.
Core Inflation Downtrend Continues, Investor Confidence Remains High
When volatile food and energy components are excluded from inflation calculations, core inflation rates provide a different perspective. The core Consumer Price Index slightly decreased from 4.7% to 4.3% year-on-year, while the core Producer Price Index dropped to a year-on-year rate of 2.2%, the lowest it has been since January 2021. This positive trend in core inflation contributed to maintaining positive market sentiment. Investors displayed confidence in the Federal Reserve’s decision to maintain current interest rates during the upcoming meeting. Additionally, robust retail sales reports indicated strong consumer spending, reducing concerns of a recession.
Stock Market Highlights
Tesla Inc. TSLA experienced a strong rally, with a 3.8% increase, making it one of the top performers in the S&P 500 index. This followed Morgan Stanley’s upgrade of Tesla to Overweight and a price target increase from $250 to $400 per share.
The chipmaker Qualcomm Inc. QCOM saw gains after securing a deal to supply Apple with 5G modems for smartphones until 2026.
On the other hand, shares of Oracle Corp. ORCL fell more than 10% on a weekly basis after the company missed revenue estimates. Netflix, Inc. NFLX also tumbled, with a 10.3% decrease, following a downward revision of its margin guidance.
The highly anticipated IPO of ARM Holdings plc ARM, Softbank’s semiconductor firm, took place this week, with a record-breaking valuation of $54.5 billion. Shares of ARM Holdings rose 14% in the first two trading days.
The United Auto Workers launched a strike against all three major Detroit automakers — Ford Motor Co. F, Stellantis N.V. STLA, and General Motors Corp. GM. The strike followed unsuccessful negotiations regarding wage increases and other employee benefits.
What To Watch In The Week Ahead
The market will be closely watching the upcoming FOMC Meeting, where the interest rate decision is expected to be announced. The Federal Reserve will also provide updated macroeconomic projections, giving insights into their outlook on future interest rate hikes.
On the data front, housing starts and building permits statistics for August will be released on Tuesday, while preliminary PMI figures for September from S&P Global are scheduled for Friday.
In addition, corporate earnings reports will be in focus. AutoZone Inc. AZO will release its earnings report on Tuesday, followed by General Mills, Inc. GIS on Wednesday. On Thursday, Darden Restaurants DRI and FactSet Research Systems Inc. FDS will report their earnings.
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