Back in late July we wrote our first update in quite a while. That first comment dealt with the Federal Reserve Open Market Committee (FOMC) meeting and updating policy. The FOMC raised rates by 25 basis points on that meeting. The next meeting will occur next week on September 19th and 20th.
Key to that meeting will be this week's inflation data due out this morning and tomorrow. The consensus for the consumer price index (CPI) is for an increase of 0.6% against 0.2% rise in the July data. Then on Thursday the producer price index (PPI) data will be released and it is expected to rise by 0.4% against 0.3% in July.
This will leave the FOMC in a quandary about whether to raise again or wait until the November meeting especially if the above numbers are hit. The consensus has become that the FOMC should wait until November. But what happens if interest rates take off on higher inflation data? This needs to be considered.
In mid August we published the retracement level on the 20 Year+ Treasury Bond ETF (TLT). It had broken all its retracement levels from last October's low to the December high. Key will be not breaking below the October low which is the 100% retracement at $92.82.
In late August before Federal Reserve Chairman Powell's speech at Jackson Hole, we noted that in 2022 after that Jackson Hole speech by Powell the market sold off into mid October dropping -14,81%. From the time of the speech in August 26th the S&P 500 fell -5.81% the rest of August, -9.34% in September and another -0.24% to the October low.
Since Powell's speech on August 25th of this year, the S&P 500 rose 3.00% the rest of August bucking the downtrend last year. However, so far September is following last year's downtrend as it is lower by -1.11%. Granted this is not much of a decline but that could change with the latest inflation data and how TLT moves.
Watch for some follow-up comment after CPI and PPI are released.
Geoff Garbacz is a principal at Quantitative Partners, Inc. and works with several independent research firms that work with buyside clients, financial advisors and institutional investors.
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