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Briefing.com Summary:
*The September CPI report did not bring good inflation news.
*Treasury yields have spiked on inflation and rate-hike concerns.
*Bank of America is down big following its earnings report and news of a large fine.
The stock market has been drifting this week, pressured by relative weakness in the AI trade and specifically the semiconductor stocks.
Entering today, the Philadelphia Semiconductor Index is down 2.9% for the week and is riding a five-session losing streak. Fortunately, that slack has been picked up elsewhere. The energy sector is up 3.3% for the week; the communication services sector is up 2.0%; and the utilities sector is up 1.1%. In fact, seven of the 11 S&P 500 sectors are higher for the week.
The sum of these parts has left the market cap-weighted S&P 500 down 0.1% for the week and the equal-weighted S&P 500 up 0.1% for the week.
The difference today, however, is the September Consumer Price Index (CPI). That report brought some bad inflation news that could end up leading to some subtraction for the major indices.
Total CPI increased 0.6% month-over-month (Briefing.com consensus: 0.6%), led by a 5.2% jump in the energy index, following a 0.4% increase in August. The September increase left total CPI up 3.7% year-over-year versus 3.4% in August.
Core CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus: 0.2%), pushed by a 0.4% increase in the shelter index, following a 0.3% increase in August. That left core CPI up 2.6% year-over-year versus 2.4% in August.
The key takeaway from the report is the acceleration in inflation away from the Fed's 2.0% inflation target. That is going to accelerate concerns about a possible tightening of Fed policy at the October FOMC meeting, not to mention deficit worries as cost-of-living adjustments for 2027 for SSI recipients are on track to see their largest increase in three years.
The equity futures market, which had been tracking higher in front of the CPI report, did an about-face in its wake, largely because Treasury yields spiked following the release.
The 2-yr note yield shot up from 4.76% to 4.94%, and the 10-yr note yield blazed from 5.17% to 5.32%. The probability of a 25 basis-point hike at the October FOMC meeting has increased to 43.7% from 22.1% a day ago, according to the CME FedWatch Tool.
Currently, the S&P 500 futures are down 34 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 225 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 176 points and are trading 0.4% below fair value.
Oil prices aren't offering any inflation relief. WTI crude futures are up 1.7% to $95.71/bbl, paying heed to a Houthi attack on Saudi Aramco's headquarters, the IEA's warning about extended supply disruptions, and reports that Iran is planning to step up its tanker attacks in front of the midterm election.
The CPI report has overshadowed the earnings results from Bank of America (BAC), Blackrock (BLK), Morgan Stanley (MS), and ASML (ASML), the reaction to which could best be described as underwhelming even before the CPI data were released.
BAC is the lowlight of the reporting group, trading down 6.9% after coming up shy of the consensus EPS estimate and getting hit with a $1.2 billion fine over failures to report suspicious transactions, according to FT.
