Seasonality and Inflation Push-and-Pull Markets
Equities struggled late in the week as option expiration added to volatility.
Last week markets seemed to take the inflation data in stride. The August data for the Consumer Price Index came in as expected, +0.6%. While the increase was higher than the previous month, the primary cause was higher energy prices. Basic consumer needs such as food, utilities, and clothing changed only slightly month-over-month. The Producer Price Index showed similar results, as energy inputs were higher and food input costs were actually lower. Through Thursday, equities were higher for the week. Unfortunately, Friday was “triple witching day” as $3.4 trillion in options expired on the same day. It was the largest options expiration in September in history. Volatility spiked on Friday, causing equities to finish flat-to-lower on the week.
There were bright spots among the economic data last week as Retail Sales jumped in August.
Industrial production was better than expected. The NY Empire State Manufacturing Index turned positive after plummeting the previous month. All eyes turn to the Fed this week as futures show a 99% probability of a rate pause at this week’s meeting. The market has already accepted this and has turned to November’s meeting, where current futures show a nearly 70% probability of no hike. Certainly, the Fed’s language will be parsed this week. The good news in terms of seasonality is that we're inching closer to the end of September (the worst-performing month for equities historically). While past performance is no guarantee, when equities are up more than 10% through the first 3 quarters, the fourth quarter has an average return of +4.6%. Corporate buybacks should pick up during the November-December period, which is usually the busiest period for buybacks on the corporate calendar.
The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.
Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
Past Performance does not guarantee future results.