Markets grew more volatile last week. Oil pushed above $100
a barrel, and Treasury yields rose as inflation data pointed to persistent
price pressure. Together, these developments revived worries that interest
rates could stay elevated longer than investors had expected.
Stocks fell for most of the week before rebounding Friday,
while energy remained the main source of uncertainty.
Stock Index Performance
The Bigger Picture
Oil turned from a sector story into a macro one.
Crude prices surged as the conflict between the U.S. and Iran raised fears that
shipping through the Strait of Hormuz could be further disrupted. Brent crude oil
prices briefly topped $107 before easing back, while West Texas
Intermediate (WTI) crude broke above $100
for the first time in months. Gasoline prices already jumped sharply in August,
and further increases in fuel and shipping costs could keep inflation elevated
well into the fall.
Inflation held steady, but core data was stickier.
Consumer Price Index (CPI) data showed that inflation
matched expectations in August, though core CPI, which strips out food and
energy, came in slightly hotter than forecast. Wholesale prices reinforced that
picture, rising faster than a year earlier as diesel costs jumped sharply for
the month. The inflation data itself wasn•t a total surprise, but with oil
prices climbing once again, price pressures could prove to be stickier than
investors would hope.
Rising yields put pressure on stocks. Bond yields
increased alongside oil, weighing on major indices. Higher bond yields can make
future company profits worth less today, since investors now demand a bigger
return to own stocks instead of safer bonds. That pressure hit growth-oriented
technology shares hardest.
The Week Ahead
This week, all eyes will be on the Federal
Reserve•s meeting on Tuesday (September 15) and Wednesday (September 16),
where markets now see increasingly strong odds of a quarter-point rate hike.
Beyond the decision the Fed makes regarding rates, markets will be watching
whether policymakers frame the oil shock as temporary or as a lasting inflation
threat, and whether that shifts their outlook for future moves.
