Those that are still watching the Federal Reserve for possible interest rate cuts were likely pleased this week to see September CPI come in at 0.18% month over month versus 0.20% the month prior. This statistic annualizes to 2.16% which is not at all far from the Fed’s target rate of inflation at 2%. That number would point to future rate cuts proceeding as everyone hopes.
A deeper look, however, at the categories of spending inside the CPI warrants quite a bit of concern. Motor vehicle insurance tops the table at 16.3% year-over-year1. In third place is the infamous “owner’s equivalent rent”, a made-up statistic used to chart housing inflation, at 5.2%. Looking beyond that, nearly every category of inflation was in positive territory (meaning getting more expensive), including groceries at 0.4% (4.8% yr.). The notable exceptions were Used Cars and Trucks at -7.5% and Gasoline at -15.3%. Keep in mind this data ended on 9/30/24. Since that point we’ve had a conflict beginning to boil over in the Middle East. The spot price of oil on 9/30 was $68.75. As of this writing it’s $75.01. That’s a 9% increase in 10 days2. This begs the question: if one of the only price-reducing elements of the CPI explodes higher, what does that do to the average of the CPI? Is our honeymoon of interest rate decreases abruptly coming to an end?
For WTA Clients: This is why we manage a Tactical Fixed Income portfolio for our clients at WTA. One of our main stated goals of the portfolio is to manage in such a way that we don’t “get caught offsides” (since we’re in football season), meaning that we don’t have all our chips on the sides of investments that do well when interest rates go down. We have some that will benefit if the public at large is wrong and the Fed is unable to lower and even has to raise rates in response to, for example, oil prices shooting upwards thereby reversing the inflation trend downward.
Meanwhile, the Dow Jones Industrial Average is setting record highs on a regular basis and tech has regained its footing and resumed its leadership role. An important lesson can be learned from the data, which is it’s about time in the market, not timing the market. That … and tech still bears the banner of the S&P 500.
At WTA, we’re trying to give you your time back in your retirement so that you can spend it with your loved ones. We believe that time grows increasingly more valuable than money as it’s something that we have less of every day that passes. Use your time wisely and remember that we’re paying attention to all this mind-numbing data so that you don’t have to. Please call us with any concerns you have. We’re always happy to chat.
Sincerely,
The WTA Investment Committee
Sources:
- Liz Ann Sonders, Charles Schwab, X, @LizAnnSonders
