September 20th 2023, 8:55:02 pm

(about 2 months ago)

US inflation higher than expected, stocks dropped

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US equities dropped this week as the latest inflation report edged up higher than expectations, opening up the way for the US Federal Reserve to increase interest rates. S&P 500 was little changes and Nasdaq dropped 0.4% this week. Canada’s S&P/TSX added 2.49% on the back of higher energy prices.
US headline inflation came out at 3.7% in August vs. 3.3% in July while US core headline declined but still at the high level of 4.3%. The higher energy and food prices pushed the inflation higher while in the core number rents and medical services were the biggest contributors.
Inflation remains above the 2% target of the central bank. While there is the argument that higher inflation could be the new norm, the US Fed has shown determination to continue their high rate environment to bring the inflation back to the 2% target.
The Fed’s rate decision meeting will be held next Wednesday, where the expectation is for the rates to be kept at 5.5% but show more hawkishness and willingness to raise the rate further. The current expectations show another 0.25% rate hike before the yearend.
The equities have managed to deliver an outstanding performance and the current economic indicators show the economy's resiliency. the forecast for economic recession is being pushed back with the latest ones seeing the recession in the back half of 2024. The stocks could extend their gains until then at least.