Markets with Megan

In this episode, Chief Investment Officer Megan Horneman looks into the January inflation report, specifically the Consumer Price Index, a highly anticipated update for investors and closely monitored by the Federal Reserve. Unfortunately, there were surprises as both headline and core inflation exceeded expectations, with notable increases in food, shelter, and service sectors. Megan talks about the details, highlighting the challenges posed by rising inflation pressures, particularly in service prices. The market's response has been significant, impacting the probability of a Fed rate cut and causing notable shifts in Treasury yields and the S&P 500. Stay tuned for more updates throughout the week, including retail sales and additional inflation data. For questions or comments, reach out to podcast at Verdence dot com.

Watch today's episode here: 

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today with our regular segment of Markets with Megan on this February, the 13th. This morning, we received the January inflation report the Consumer Price Index and investors have been anticipating this report. This does tend to get quite a bit of attention and also can be a big market mover and definitely something the Federal Reserve is going to be watching. Unfortunately, inflation went the other way. So we've had a lot of progress, with inflation steadily coming lower, but we had some surprise here, not only on the headline level, but also on the core level, which excludes some of those volatile items like food and energy. So both of these increased more than expected.

When you look at some of the details within this report the food, for example food within this report that rose the most in about a year. The shelter component, which is the biggest component in this index, that was up the most in 16 months. And then you look at some of the other service sectors. This is like medical care services they were up the most since September of 2022. And then a surprise, you know continual increase, more than it was 1.4% on a month-over-month basis, but it's been more than a percent for the past three months is increases in motor vehicle insurance. So what is all of this mean? First of all, when you look at the headline level, which includes energy, that rose more than expected, but yet the energy component of it was sharply negative. So this shows you there are inflation pressures out there. Still, when you look at the ex food and energy, we want to focus on that service side. Often we've talked about the sticky inflation, and sticky inflation is services, housing and wages, and what we've seen is this service side of this is going in the wrong direction. The service prices continue to jump. They were up 0.7% when you exclude energy for the month. The markets are reacting as would be expected. The the probability of the Fed cutting rates in May is now down to, I think, less than 30%. The 100% chance of a rate cut has been moved all the way out to July. The two year yield on the Treasury notes that jumped the most that we've seen since the Fed pivoted to get more dovish back in December of last year and the S&P 500 is now on pace to post its worst day that we've seen this year, with every 11, all 11 sectors lower.

For the day We'll be back. This week There'll be lots more information and stuff to report. I will say that there are some rumors that there might be some nuances in January inflation reports. We won't take one month as a trend we always say that but what we are seeing is going to get the Fed's attention. The sticky stuff that they've talked about is going in the opposite direction. They need to stay continually hawkish and keep interest rates higher for longer. The rest of this week we'll have Thursday with retail sales and then there'll be some more inflation data out on Friday. That's all we have today. If you have any questions or comments, please feel free to reach out to podcast at Verdence dot com. Thank you.