CPI Report on the Horizon: Key Inflation Data Expected Next Week
The August Consumer Price Index (CPI) report is set to be released on Wednesday, September 11, 2024, before the market opens. Expectations are for a +0.1% increase overall and +0.2% for Core CPI. However, this data may only have a significant market impact if it deviates substantially from these estimates, given Federal Reserve Chair Jay Powell’s recent comments that have shifted focus from inflation concerns to the sustainability of job growth.
Job Market Concerns: Fed Focused on Employment Amid Economic Slowdown
Powell’s recent speech at Jackson Hole highlighted that the Fed’s primary concern now lies with the U.S. labor market and its ability to sustain growth, particularly in the run-up to the Presidential election. Recent data, including unexpected benchmark revisions and a weaker-than-expected JOLTS report, have underscored a slowing or softening in the pace of job growth, aligning with the Fed’s growing concerns.
High-Yield Credit Spreads: Early Warning Signals of Economic Trouble?
Corporate high-yield credit spreads are often seen as an early warning indicator for potential economic downturns. Recent updates from sources like Bespoke and financial commentators, including Kathy Jones of Schwab, have highlighted the continued tightness in corporate high-yield OAS (option-adjusted spreads). This positive breadth in high-yield credit suggests some resilience, but it remains a closely watched space as spreads can widen quickly in response to economic stress.
Contradictory Signals: Strong Forward Earnings vs. Seasonal Weakness
Despite broader economic concerns, S&P 500 forward earnings per share (EPS) remain robust, presenting a counter-narrative to the typical seasonal weakness often seen in September. While the market’s reaction to the upcoming CPI data will be closely watched, the overriding narrative appears to be one of caution due to softening labor market conditions and potential risks flagged by high-yield credit spreads.
As we move further into September, investors will need to navigate these mixed signals, balancing strong corporate earnings against emerging signs of economic slowdown and the ever-present influence of Fed policy decisions.
