Hello, this is Claire Ellerhorst, Senior Portfolio Manager at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices were mostly higher last week. The S&P 500 Index was up half of a percent, the Dow Jones Industrial Average was up 0.8% and the Nasdaq Composite was down 0.2% for the week in total return. Treasury yields softened, with the 10-year U.S. Treasury yield falling to 4.62% and the 2-year U.S. Treasury yield retreating modestly to 5.06% at the end of the week. Oil prices rose and the U.S. dollar strengthened versus major peers.
Markets were supported by dovish commentary from Federal Reserve officials, with several officials noting that tighter financial conditions from the recent backup in Treasury yields make further rate hikes from the central bank less urgent.
In addition to interest rates, the tragic events in the Middle East and the economic and financial market implications of those events were in focus. In the very near term, we expect economic uncertainty and subsequent financial market volatility. Absent significant escalation, markets will likely look past the geopolitical tensions, as they did in this past week. We are monitoring the situation closely.
In economic news, the headline consumer price index (CPI) rose 3.7% year-over-year in September, slightly ahead of economists’ forecasts. Core CPI rose 4.1% year-over-year, in line with expectations. Shelter inflation remains elevated and the main factor in the increase in inflation in the month of September. The index for shelter that makes up about a third of CPI rose 7.2% from a year ago and on a monthly basis, shelter accounted for more than half the increase in the consumer price index. Weekly initial jobless claims came in unchanged last week, holding at historically low levels and reaffirming strength in the U.S. labor market despite higher interest rates.
Third quarter earnings season has officially begun, with recent positive earnings revision momentum fueling a somewhat optimistic tone. The S&P 500 may get close to positive year-over-year earnings growth for the third quarter, following three straight quarters of year-over-year declines.
In the week ahead, the U.S. economic calendar includes retail sales, industrial production and housing starts, providing additional context on the strength of consumers, manufacturing and the housing market.
As always, we’ll be watching and reporting back to you. Thank you.