There was a lot of data dumped in our laps this week – all which affected the direction of the overall market.

First up was the Producer Price Index (PPI) on Wednesday. The PPI measures the selling price of goods producers pay or wholesale pricing. The PPI for September came in hotter than expected.

PPI increased 0.4% in September – double what economists had anticipated. Core PPI, which excludes food, energy and trade services, increased 0.4% month-over-month and 5.6% year-over-year.

The PPI hit its peak at 7.1% in March 2022 and had been going down since until the last two months. This tells us that the core PPI rate has plateaued, and that inflation is structural at a wholesale level.

As a result, markets closed slightly lower Wednesday in anticipation of what was to come Thursday morning… the Consumer Price Index (CPI) numbers for September.

In today’s Market 360, we’ll look at the most recent inflation numbers and talk about what that means for stocks as we close out the year.

Inflation Is Still HOT

Yesterday morning the Bureau of Labor and Statistic released September CPI numbers. CPI rose 8.2% year-over-year and 0.4% month-over-month. This is slightly higher than the 8.1% economists were expecting.

Worse yet, core CPI, which excludes food and energy, increased 6.6% year-over-year compared to the expected 6.5% and 0.6% month-over-month.

Economists expected the core number to outpace the headline inflation number because the core CPI includes things like the cost of rent and services and as health care. The fact is costs of these things are sticky. Once they go up, they are likely to stay up.

Bottom line: Core inflation is not cooling off. It also tells us that consumer inflation is structural.

Naturally, this spooked Wall Street, and the broader market slipped more than 2% in early trading.

But – the market didn’t say down. In fact, it staged a historic comeback…

The Dow rose 827 points, or 2.8%, recovering from a 500-point drop earlier in the day. The S&P 500 rose 2.6%, and the NASDAQ gained 2.2%.

As reported by CNBC:

The choppy session saw stocks fall to their lowest levels since 2020 following hotter-than-expected inflation data and then post a stunning rebound. The Dow regained more than 1,400 points as traders digested the September consumer price index report. The S&P 500 posted its widest trading range since March 2020, going from being down 2.39% to rising 2.39%.

Leading the way higher?

Energy and bank stocks.

It’s likely investors are betting on the fact that we are again seeing peak inflation.

Chief investment strategist at Charles Schwab, Liz Ann Sonders, said, “Maybe we get this last gasp higher in inflation and from here we start to decelerate.” But don’t expect a smooth ride from here. She added that the swings in stocks are likely to continue as investors continue to digest inflation data and earnings coming in.

Stay Focused On Earnings

It has not been an easy year to be an investor. The market’s wild swings have been enough to give even the most seasoned investor whiplash.

And while I agree with Sonders, things may continue to be choppy from here – I do expect things to turn around for fundamentally superior stocks during the third-quarter earnings season.

Personally, I’m most excited about energy companies’ numbers, as they’re expected to post the best earnings this season.

FactSet recently reiterated that the energy sector is the sole sector to benefit from positive analyst revisions over the past three months. Third-quarter earnings are now forecast to soar 117.6% year-over-year, up from previous estimates for 103.4% average growth.

I expect crude oil to rise to $120 per barrel in the spring as seasonal demand perks up. But in the meantime, energy stocks will continue to benefit from elevated crude oil prices. Given this, I still anticipate energy stocks will have the strongest sales and earnings growth for the next few quarters. So, expect me to continue banging the drum on energy companies. I fully expect them to come out on top by the end of this earnings season. It’s why I’m making such a big bet on energy in Growth Investor (as well as my other Navellier newsletters).

Furthermore, energy is a great hedge in the inflationary environment we are in right now.

If you want to bet on energy, too, join me at Growth Investor today and have full access to all my stock recommendations and my latest Top Stock picks.

To learn more about Growth Investor, click here.

Sincerely,

 

 

Louis Navellier

Editor, Market 360