A hotter-than-expected inflation report sent stocks sharply lower last week as investors faced the prospect of more aggressive interest rate hikes by the Federal Reserve for perhaps a longer period.
The Standard & Poor’s 500 lost 4.77%, while the Dow Jones Industrial Average fell 4.13%. The Nasdaq Composite index dropped 5.48% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dipped 1.78%.1,2,3
Inflation Deflates Markets
Stocks suffered their worst day in more than two years last Tuesday as markets were caught off-guard by a higher-than-anticipated August inflation report.
Markets expected the August report to show a substantial cooling of inflation, potentially allowing the Fed to ease up on interest rate hikes. Instead, the elevated inflation number not only undercut those easing hopes but raised the possibility of a more significant rate hike. On Tuesday, traders assigned a 28% probability of a 100 basis point hike, from a 0% chance just the day before. Price action remained choppy for the remainder of the week, closing the week with additional losses as a global package-delivery company warned of a worldwide recession.4
August CPI Disappoints
August’s Consumer Price Index (CPI) rose 8.3% from a year ago, showing a continued deceleration in price increases (July’s CPI was 8.5%, and June’s was 9.1%). Despite moderating price increases, traders were disappointed, given the general expectation of a more substantial slowdown in inflation.5
Core inflation (excluding food and energy) was particularly alarming to investors, which jumped 6.3% year-over-year. That number was well above the 5.9% rate from June and July. From the market’s perspective, sufficient inflationary pressures exist for the Fed to maintain its hawkish interest rate policy for possibly longer than investors had hoped.6
The truth is that it will take time for lower gasoline prices to trickle down into other prices. And food costs are also elevated due to the high price of fertilizer. Normally Russia and China are large exporters, but the war in Ukraine and China's trade posture are issues in that market.
This Week: Key Economic Data
Tuesday: Housing Starts.
Wednesday: Federal Open Market Committee (FOMC) Meeting Announcement. Existing Home Sales.
Thursday: Index of Leading Economic Indicators. Jobless Claims.
Friday: Purchasing Managers’ Index (PMI) Composite.
Source: Econoday, September 16, 2022
This Week: Companies Reporting Earnings
Monday: AutoZone, Inc. (AZO).
Wednesday: General Mills, Inc. (GIS).
Thursday: Costco Wholesale Corporation (COST), FedEx Corporation (FDX), Lennar Corporation (LEN).
Source: Zacks, September 16, 2022
"There is nothing in a caterpillar that tells you it's going to be a butterfly."
– Buckminster Fuller
How to Find Tax Help in Other Languages
The IRS currently translates important and helpful tax information in seven languages, including:
Some multilingual resources include The Taxpayer Bill of Rights, important filing information, e-file resources, forms and publications, and the IRS2Go mobile app.
For access to information in these languages, taxpayers can click on the English dropdown tab in the top menu bar on the IRS.gov home page. The dropdown will list the other languages a taxpayer can choose to view IRS.gov pages. In addition, the IRS also offers interpreter services in more than 350 languages.
*This information is not intended to substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov7
What is Pickleball?
Pickleball has taken the world by storm, and for a good reason! The game is easy to play, it’s great exercise, and you can play at many different levels.
Pickleball combines tennis, ping pong, and badminton elements to create an addicting and fun sport. To play, you hit a Wiffle ball (a plastic ball with holes) with a paddle on a badminton-sized court. There are some unique rules to pickleball, but overall, it has simple gameplay and is super fun.
If you want to start playing pickleball, check out your local parks and tennis courts! More and more areas offer open play, rec leagues, and lessons for players of all levels.
Tip adapted from USA Pickleball8
We all have one, and even though it often demands an answer, it offers no question. What is this everyday item?
Last week’s riddle: Gerald Ford was our 38th President, but he was actually the 37th man to take the job. Why was that? Riddle answer: Grover Cleveland was both the 22nd and 24th President of the U.S.; he served two non-consecutive terms.
Azenhas do Mar, Lisbon District, Portugal
Footnotes and Sources
2. The Wall Street Journal, September 16, 2022
3. The Wall Street Journal, September 16, 2022
4. The Wall Street Journal, September 13, 2022
5. The Wall Street Journal, September 13, 2022
6. The Wall Street Journal, September 13, 2022
7. IRS.gov, March 16, 2022
8. USAPickleball.org, May 26, 2022
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Weekly Market Insights: Hot Inflation Report Alarms Investors
September 19, 2022