October 10th, 2022

Where We’re Headed In Three to Six Months

I hope everyone had a refreshing weekend and is ready for the week ahead.  The SPY daily chart shows we had one of the best two-day performances in recent history, but last week’s jobs report showed that the job market is too strong and that will bring more rate hikes.

Unemployment isn’t up and salaries are up year-over-year. What last week showed is that the Fed will be left to keep doing exactly what they said they would do – aggressively increase rates until inflation is under control. There are signs that the situation is improving. Yes, I say that in light of everyone else talking about doom and gloom with an upcoming (or ongoing) recession.

First, let’s look at the US ISM (Institute of Supply Management) Services Prices Paid Index. Over the last few years, prices paid have been on the rise, and now we’re starting to see the index come down as rate hikes have increased. The index has been heading down ever since May.

Now, here’s a chart of the US Services PMI (Purchasing Managers’ Index). This is based on data collected from a representative panel of over 400 private sector companies covering transport, communication, financial, business and personal services, computing and IT, and hotels and restaurants.

Just after May, as the price index started coming down, the number of new orders hit a bottom in July and has been slowly rising ever since.

In short, as the Prices Paid Index retreated, the Services Index leveled off and is now slowly climbing. This is exactly what the Fed is trying to do. And this same scenario is what we expect to see with the Consumer Price Index (CPI) over the next three to six months.

Now, let’s get ready for the week ahead and look at the reports and news most likely to impact the markets this week.

Monday – Columbus Day – The stock market is open, but the bond market is closed as are banks and Federal offices.

Wednesday – 8:30 am EST – PPI-Final Demand – The Producer Price Index is showing that prices are cooling, edging a little lower, and showing that while we may see a slight increase month-over-month, we should see a reduction in prices year-over-year.

Wednesday – 2:00 pm EST – FOMC Minutes – We expect to have more clarity on the Fed’s rate hike path after last week’s stronger-than-expected labor report.

Thursday – 8:30 am EST – CPI – The Consumer Price Index is expected to go down year-over-year, but the market is expecting to see a slight month-over-month increase due to increases in food and energy prices.

Thursday – 8:30 am EST – Jobless Claims – The market is expecting to see claims come up by 6k from last week, but the 4-week moving average is still near a low of 206.5k.

Thursday – 8:30 am EST – EIA Petroleum Status Report – We already know what OPEC+ is planning to do in November, which led the US to dip further into their strategic reserves to keep gas prices from skyrocketing.

Friday – 8:30 am EST – Retail Sales – The market is expecting a slight decline from last month, but mostly flat. This number will become more interesting the closer we come to the holiday season.

That’s it for today. That’s already a lot of info for a Monday.

If you have any questions, comments, or anything we can help with, reach us at any time.