September is typically a tough months for markets. This year is fulfilling on that promise of weakness & volatility as equity markets have been reminiscent of a popular ice cream flavor the past two weeks- Rocky Road!

As we noted last week, there are quite a few major events happening in September and once they are in the rearview mirror, markets may be able to find some footing. Three events were ticked off the list this week – the presidential debate, August CPI, and August PPI. Let’s look at each of these – and then hear some words of wisdom from a Peloton instructor (there’s a reason to keep reading!)

Presidential Debate

This week brought the first (and perhaps only) debate between Former President Trump and Vice President Kamala Harris. There is considerable historical market evidence explaining the impact of a president on the equity markets (I’ll revisit this in coming weeks but short version is it’s best to stay invested at all times, regardless of the ruling political party). However, as you know by now, markets thrive on certainty and with the presidential race seemingly a tie at the present moment, any movements one way or the other likely impact markets in the short term. As a result, it’s likely the debate and the various takes on that discussion moved markets this week.

CPI & PPI

Two inflation reports were issued this week – on the consumer side (CPI) as well as the manufacturing side (PPI). Both reports confirmed that inflation remains under control. While both of the reports still showed some inflation, they confirmed that month over month inflation is nearing zero and year over year trends are approaching (but not yet at) the long-stated 2% target.

On the CPI side, inflation rose 0.20% in August (0.28% on a Core basis) for the month and 2.5% year over year (3.2% on a Core basis).

The report initially sparked concerns of reignited inflation as the Core number (the Fed’s preferred gauge) rose from the July print (when it was 0.17%). Three categories drove that entire change – shelter, airfare, and hotels. While these items remain expensive, it doesn’t seem as though they was a marked increase suddenly and is likely a seasonally driven dynamic that will fade next month.

Notably, 55% of CPI categories are back at pre-COVID level and 43% of items are in deflationary mode. These are both cycle highs and encouraging evidence that inflation remains under control.

Investors initially reacted very negatively to the CPI print (with major averages falling over 1-2% in the first two hours to trading). However by the day’s end on Wednesday, all major averages closed higher. Rocky road!

On the PPI side of things, the report was in line with expectations. Producer prices rose 0.2% in August and 1.7% year over year. This was in line with expectations. On a Core basis, there was again a slight miss (rising 0.3% versus 0.2%). Services prices were the driver of PPI inflation in August – again with a large jump in hotel prices, while good prices were essentially flat.

Markets took the report in stride, rising modesty on this news.

Where to from here?

Next week will bring further clarity and sightlines to markets as the Federal Reserve is set to make their rate announcement. While the degree of the cut certainly matters, I am far more interested in the accompanying message and its tone. At a high level, markets seems fixated on what’s causing a slowdown in jobs and other economic metrics – a recession or a growth slowdown? Hopefully, the Federal Reserve will provide commentary that confirms our belief we are looking at the latter. We (and markets) will be watching closely.

Parting Thoughts

I’m a big fan of Peloton spin classes. If you have never taken one, you may not know that in addition to a great workout, the instructors often sprinkle the workout with motivational rhetoric and inspirational phrases (to help power you to the finish!). This week during a ride taught by Robin Arzon, she said:

” are you willing to stay in the work long enough to see what it reveals about you?”

As a fellow investor, I would pose that same question to you. If you have been investing over several years (even decades), you will undoubtedly have learned what times of market volatility (and exuberance) reveal about you and your personality, risk tolerance, and commitment to your long-term financial journey.

This week was yet another opportunity to stay in the work and see what it revealed. Feel it, observe it, reconcile it, and move forward. Staying in the work is the only way.

Onward we go,