Markets Rally But Give Up Early Gains; Bonds Mixed
The Dow (+2.0%), NASDAQ (+0.7%), and S&P 500 (+1.6%) all gained for the week but gave back about half of the roughly 4% they gained on Monday and Tuesday. Meanwhile, taxable bonds fell about 0.2%, while tax-free municipal bonds gained about 1%. I am far happier to see the tax-free bonds buck the trend and go up, as they have suffered the most over the past several months, even when taxable bonds were going up. Tax-free municipal bonds have been oversold by investors over the past several months and are considered by many economists as being very favorably priced now. Hopefully, that is finally rearing its head.
Economic data was mixed last week, from the perspective of not being as bad as many economists feared. The ISM Manufacturing Index fell sharply in September, and even more so in Europe and China, with the non-US economies being considered in contraction territory. However, the ISM Services Index (the larger of the two ISM indexes) fell only a little bit, demonstrating the US services sectors remain healthy, which could indicate a less severe recession ahead. The big mover last week was the energy sector, which gained 14%, as OPEC+ announced that it would cut oil production. Of course, that is being recognized at the pump, as gas prices have reversed course and are moving upward again.
Looking at the week ahead, the key inflation measure, Consumer Price Index (CPI), will be released on Thursday showing last month’s inflation data. If it remains high or goes up, we can expect that to put downward pressure on the markets. If inflation numbers decline, then it could give the Fed reason to pause its rate tightening campaign, providing a lift to the markets. I’m not very optimistic, and with energy prices rising, this could cause October inflation to rise, and we won’t see those numbers for another month.
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About the Author: Michael Menninger, CFP®️