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Market Recap – October 17, 2022

Keel Point

October 24, 2022

“Evidence of falling inflation is everywhere except in the inflation data.” (Ian Shepherdson) Almost every indicator other than the CPI suggests that inflationary pressures are easing. 

  • September’s CPI inflation reported last Thursday showed another new high in core inflation at 6.6% over the past 12 months. 
  • In the US housing market, 30-year fixed mortgage rates are over 6% and headed to 6.5% by month end. New housing starts are declining, and existing home sales have fallen over the past seven months. 
  • At the same time, rents are falling month-over-month in many major markets, commodities are at a seven-month low, retail inventories are forcing retailers to cut prices, container freight rates are falling, and the US ISM Manufacturing Prices Paid Index is currently down 36% from a year ago. Inflation in services, however, is persistent. 
  • Until the disinflationary data show up in official figures, the Fed will continue hiking interest rates, with another 75 bp in November and maybe in December as well. Indeed, September FOMC minutes reported that its members see “… the cost of taking to little action to bring down inflation likely outweighed the cost of taking too much action.” 

The question of whether inflation or interest rates peak first and then recede drives the debate on whether the economy is headed for a “hard” or “soft” landing. 

  • U.S. economic fundamentals remain strong, so there is a case to be made for a “soft” landing. In the last 60 years there have been three soft landings following Fed rate hikes, however, and all three were efforts to prevent inflation rather than addressing already high inflation.

The S&P 500 is expected to report 2.4% year over-year earnings growth for the third quarter. 

  • This would be the lowest earnings estimates reported by the S&P 500 since Q3 2020 (FactSet). Its actual earnings growth has exceeded the prior estimates in 39 of the past 40 quarters, except for Q1-2020.

 

Disclosure: Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC. Brokerage and Investment advisory Services are offered under the Keel Point brand. Investment Advisory services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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