Stocks Moved Lower on Inflation Data

What is it? 

The data that is used to measure inflation came in higher than expected. In early trading last Thursday, markets pushed lower initially on the news.*

“The Bureau of Labor Statistics released its Consumer Price Index (CPI) for September early Thursday, which showed prices rose 8.2% over the prior year and 0.4% over the prior month. The core consumer price index, which excludes food and energy, rose 6.6% from a year ago, marking the highest level since 1982. Economists surveyed by Bloomberg had expected a slight deceleration to 8.1% annually and the core reading to accelerate to 6.5% from a year earlier.”

Why does it matter?

This inflation data makes it more likely that the Fed will continue to raise rates around 75 basis points (0.75%). Markets have fallen to new lows for the year in October. Some investors were ready to call a market bottom earlier. We bought in sparingly while maintaining larger positions in cash and short term treasury ETFs. After that, we reduced exposure to the overall market on Wednesday of last week. 

Energy is Outperforming Year-To-Date

What is it? 

While the stock market is down so far this year, that is not true for each sector of the U.S. economy. 

**

The above bar chart from FinViz shows the year to date performance of Each of the 11 U.S. sectors as of mid-day on Thursday October 13th. 

Why does it matter?

First this is a good time to point out that holding a security with all the sectors may not be the most favorable allocation. Most of our portfolio models have a tactical approach that allows for more active trading. Our Tactical Equity model for example includes ETFs of each of the 11 sectors. We invest in the ones that fit our investment methodology. For that we take into account what part of the economic cycle we are in, and use charts (among other things) to spot times of growth, contraction, or consolidation. 

We will see if the outperformance in energy holds up. Many conditions could factor in especially how the Fed acts to combat inflation or rising tensions overseas. Inflation may continue, or even turn to deflation which would cause commodity prices such as oil to be worth less compared to the U.S. dollar. While the future is uncertain, we believe that we have a plan in place to navigate the market environment presented to us in the best interest of our clients. 

Other articles we found interesting this week:

Wall Street’s ‘fear gauge’ is flashing a warning that stocks could be about to fall off a cliff

Wall Street ends up 2% after sharp reversal; technicals help

ARK Extends An Open Letter To The Fed

Current 401(k) portfolio

Our last portfolio reallocation: 5/19/2022. 

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The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach. 

Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.

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Sources:

*Dani Romero. “Stocks sink as inflation report comes in hotter than expected” 10/13/2022. Yahoo Finance. https://finance.yahoo.com/news/stock-market-news-live-updates-october-13-112745635.html

**FinViz. “Year To Date Relative Performance” Financial Visualizations. 10/13/2022. https://finviz.com/groups.ashx

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