The Market Reacts to a Surprising CPI Report


The Consumer Price Index came in this morning, and the news wasn’t great. August’s report from the Bureau of Labor Statistics revealed an 8.3% increase over August 2021 and a 0.1% increase over July 2022. Economists had expected a 0.1% decrease over the month.

The market responded accordingly, with the S&P 500 sinking about 3%, led by tech stocks. In yesterday’s livestream, we predicted that the S&P’s bullish run might be stymied in the short term by the report and other new inflation data, and we were right. Support levels still look strong, but the fears that the Fed will keep raising rates to control inflation will keep a lid on the market for a little while longer.

John Jagerson livestream screenshot

While the headline CPI number didn’t look terrible, the core CPI data (the number that excludes food and energy prices) rose far more than expected. The core number is the one the Fed watches most closely because it doesn’t believe it can impact food and energy prices with monetary policy.

Seeing the core CPI number jump like that caught everyone off guard because it tells us the general inflationary pressure is stronger than we thought, and the Fed is further behind the curve in its battle to bring inflationary pressure down. This will likely lead to more aggressive rate hikes in the future.

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Good News in the Midst

The silver lining in the report is that prices only increased 0.1% – that small uptick means moderation in price increases from earlier this year, when they reached a decades-high peak. Falling gas prices can be credited with mitigating the hike. Other positive fundamentals include high consumer spending and positive labor reports.

Looking forward to the run-up to the next Federal Open Market Committee meeting starting on Sept. 20, we expect monthly retail sales and the Empire State Manufacturing Index Thursday. It measures growth and sentiment in the manufacturing sector of New York state, plus assesses factors like inventory, new business, and more.

If you feel like adding some risk, then we still advise buying on the dips, particularly when opportunities arise in the consumer defensive sectors – those are manufacturers and distributors of food, beverages, and household and personal products.

However, both releases could do a lot to shift expectations… again.

Viewer Questions and Feedback

In the livestream this week, there were plenty of questions about the CPI, plus a few we covered last night

  1. What does the word “tape” mean with respect to the financial markets? – Stephen K.
  1. Can you look at Dick’s Sporting Goods for a possible cup-and-handle pattern? – Amy P.
  1. Do you think the chances of XLF (ETF that tracks financial sector) will fall into a head-and-shoulders pattern? – Kevin F.
  1. Can you do a technical analysis on Tesla? – Sam A.

Click here to learn more about what was on our viewers’ minds and our market outlook for the coming days.

If you have any questions yourself about options trading, specific stocks or bonds, or market trends in general, we’re happy to answer them. Just email or drop us a line in the video comments.


John Jagerson & Wade Hansen

Editors, Trading Opportunities


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