Who's Worried About Inflation? Everyone

By Jeffrey Cane |  Wednesday, October 13 Inflation Nation. As Halloween approaches, the scariest thing in the markets is inflation. “Inflation is the single biggest risk out there right now both in terms of the short-term risk it can have on the recovery and the longer-term risk it can have in respect of emerging markets,” Goldman Sachs' No. 2 executive, John Waldron, told the virtual annual meeting of the Institute of International Finance today, according to Reuters.   The September consumer prices report today supported such fears, showing that U.S. inflation remains hot, with a 5.4% rise in the consumer price index on an annual basis. The core CPI, which excludes food and energy costs, advanced 4% from a year ago, the same increase the core index saw in August. Later in the day, the Federal Reserve disclosed that policy makers at their September meeting expressed concerns that inflation could persist for longer than their previous "transitory" expectations.  Yet the worrying had a muted effect on stocks, which ended generally higher. The biggest impact was felt in the Treasury market, where the spread between short-term and long-term securities narrowed. The yield on the two-year note rose to 0.368% -- a 52-week high -- while the yield on the 10-year note fell to 1.549%. The decline in longer-term yields dragged down financials, the worst-performing sector today. Delta Air Lines tumbled 5.8% after warning that rising jet fuel prices would hurt profits in the fourth quarter. The S&P 500 still closed up 0.3%, ending a three-session losing streak.  The Dow Jones Industrial Average fell a half point, pulled lower by JPMorgan Chase, which declined 2.6% even as it reported quarterly earnings that exceeded Wall Street estimates, and American Express, which slumped 3.5%. It was mostly a good day for Big Tech, and the Nasdaq Composite advanced 0.7%. The NYSE FANG+ index rose 1.1%. The Russell 2000 gained 0.34. The U.S. dollar, meanwhile, was an inflation casualty, having its poorest day against other major currencies since August, while gold was a beneficiary. The traditional inflation hedge rose 2% today, to $1793.70 an ounce, its biggest one-day gain since March. The touted gold alternative, Bitcoin, also strengthened, trading at $56,987 this afternoon, up nearly 3%.  High inflation could persist into next year, Jamie Dimon, the chief executive of JPMorgan, acknowledged in an earnings conference call with analysts today, according to a Sentieo transcript. Yet he also sought to put it in perspective:   I think it's unbelievable that we're getting out of this thing [the pandemic crisis] and have 4% unemployment. And you can have good growth with some inflation, and that's OK. I think the people are always focusing too much on immediate concerns. If you have inflation of 4% or 5%, we're still going to open deposit accounts and checking accounts and grow our business. Something to keep in mind as we go deeper into third-quarter earnings season and hear more about inflationary pressures from CEOs and chief financial officers.

 

DJIA:  -0.002% to 34,377.81 S&P 500: +0.30% to 4,363.80 Nasdaq: +0.73% to 14,571.64 The Hot Stock: Advanced Micro Devices +3.9% The Biggest Loser: Delta Air Lines -5.8% Best Sector: Utilities +1.2% Worst Sector: Financials -0.6%