Inflation Head Fake

By Alex Eule | Tuesday, September 14

On Second Thought. Inflation-wary investors seemed to catch a break this morning, with the release of the monthly consumer price index. The CPI showed a month-over-month gain of 0.3%, below economists' forecast of 0.4% and down from last month's 0.5% increase. Stocks jumped at the open, but then investors had second thoughts -- and they weren't particularly happy ones. The S&P 500 finished the day down 0.6%, while the Dow Jones Industrial Average shed 292 points, or 0.8%.

The Treasury market seemed to take the lower CPI number on face value, at least. The yield on 10-year Treasury note fell nearly five basis points, to 1.276%.

While the headline inflation numbers were better than last month, Barron's Lisa Beilfuss suggests the underlying trends are still worrisome: 

While areas connected to the reopening cooled in August as the Delta variant spread and spurred new restrictions and consumer caution, inelastic areas of the economy still showed elevated levels of price inflation. The price of chicken rose 2.2% last month after rising 0.6% in July while the price of milk rose 0.9% after increasing 0.5% in July. Hospital services were 0.5% higher, compared with a 0.2% rate a month earlier, while energy prices gained 1.6% from 1.5% in July.

Meanwhile, another worry is that the pricing environment could still weigh on the profitability of companies delivering goods. In their markets coverage today, Jack Denton and Jacob Sonenshine note that the producer price index -- up 0.7% in August -- is rising faster than its CPI counterpart, suggesting that producers haven't yet been able to pass along costs to consumers. 

Oanda analyst Ed Moya writes that "economists saw trouble for U.S. companies' margins, mainly because the rise in producer prices was not passed onto the consumer." 

Sure enough, in introducing its much-awaited iPhone 13 today, Apple largely held its prices in check. The new entry level iPhone 13 will start at $799, the same price as the iPhone 12 when it was launched a year ago. That's despite rising costs for chips and other phone components. Apple shares finished the day down 1%. You can read more about Apple's launch event here.

Despite Apple's slide, technology stocks still outperformed on the day. The tech sector was down just 0.1%, while energy, financials, industrials, and materials were all down at least 1%. 

The S&P 500 is now down six of the last seven trading days, though it's still off a modest 2.1% from its early September peak. 

DJIA: -0.84% to 34,577.57
S&P 500: -0.57% to 4,443.05
Nasdaq: -0.45% to 15,037.76

The Hot Stock: Zimmer Biomet +4.7%
The Biggest Loser: Wynn Resorts -10.9%

Best Sector: Technology -0.1%
Worst Sector: Energy -1.4%