Last week, America approached self-restraint the way Joey Chestnut approaches a hot dog. Unfortunately, the Federal Reserve was one of the judges. Stronger-than-expected retail sales, low jobless claims, and a renewed uptick in import prices reinforced the case for the Fed’s 25-basis-point rate increase, even as manufacturing activity softened.
- The S&P 500 slipped 0.1% while the Nasdaq gained 0.7% during the week. Tech, communication services, and health care led the market higher, but most sectors finished in the red, with utilities, financials, and real estate taking the hardest hits. Growth outperformed value and large caps beat small caps. International stocks struggled almost across the board.
- The Bloomberg U.S. Aggregate Bond Index was essentially flat for the week, losing 0.03%, as the Fed hiked rates and the 10-year Treasury yield climbed to 5.01%. The 2-year U.S. Treasury yield jumped to 4.77%, flattening the yield curve and suggesting bond investors have all the enthusiasm of someone reading the terms and conditions before clicking "Accept.“
- Crude oil retreated below $100 a barrel to $96.08, but gasoline prices still climbed to $4.64 a gallon because apparently oil prices and gas prices are currently observing different holidays. Gold edged up to $4,425 an ounce, continuing its slow march higher while everyone waits for the next thing we're supposed to worry about.
- The U.S. dollar strengthened against the euro, pound, and especially the yen, which means American tourists suddenly felt wealthier for reasons they will almost certainly attribute to personal growth.
- Retail sales rose 1.2% in August, crushing expectations, as though Americans kicked open the doors and yelled, "WHAT IF WE BOUGHT EVERYTHING?" Consumers were sprinting through stores like contestants in a game show called Supermarket Sweep: Inflation Edition.
- The Fed saw everyone shopping like they were preparing for a meteor strike and responded by raising rates 25 basis points. The message from the Federal Open Market Committee was essentially, "We gave you one job. Stop buying inflatable kayaks, espresso machines, and tactical water bottles at the same time.“
- Import prices increased 0.7% in August, hotter than expected. Much of the increase came from nonfuel goods, meaning even stuff arriving on ships seems to be charging main-character prices now. The annual increase reached 7.0%, the highest since 2022.
- Export prices rose 0.6% in August after falling 1.4% in July. The rebound suggests producers regained some pricing power and are once again behaving like that artisan coffee shop that charges $16 for something served in a beaker.
- Economists keep looking for labor-market weakness the way Victorian explorers searched for Atlantis. Initial jobless claims for the week ended September 12 fell 1,000 to 196,000. Continuing claims for the week ended September 5 decreased 39,000 to 1.73 million. Layoffs remain unusually low.
- Then we arrive at the weirdest character in this sitcom: industrial production. Manufacturing fell 0.3%, as factories looked at the economy's enthusiasm and said, "Not my problem." The only reason overall production stayed flat was that the weather turned into the surface of Mercury and air conditioners picked up the slack.
- The earnings outlook is still positive, but analysts have gone from "I love this movie" to "let's see how it ends." Upward revisions fell to 54% of the total from 58% the week before. That's notable because the quarter itself remains a blockbuster: 85.7% of companies have topped estimates and earnings are on track to grow 53.4% from a year ago.