Three Takeaways for Investors

Jeff Roach (00:02):

Hi, I am Jeffrey Roach, Chief Economist at LPL Financial, and in this edition of the Econ Market Minute, I'll share three key takeaways for investors. First, markets will shrug off inflation for now. The rise in gas prices in August was the largest contributor to headline inflation, but will not likely show up again next month. Annual core inflation decelerated to 4.3% in August from 4.7% the previous month. Prices for hotels, used vehicles, and recreation all declined in August. And I think the decline in prices for hotels could indicate consumer demand is starting to wane on travel-related services. Here's the bottom line. Markets will likely look past the rise in headline inflation since the largest contributor should not be a big factor next month. Yields on the two-year treasury are trading below the previous day's close, indicating, I think that markets are taking the latest inflation report in stride as the Fed is expected to keep rates unchanged at its upcoming meeting.

Jeff Roach (01:10):

Second, housing imbalances will likely last for a while. The Fed publishes what they call the beige book eight times a year, and these survey data are helpful since comments from businesses and individuals could provide a sneak peek into the trajectory of the economy. And that's before the hard data pick up, the rotation. And one of the latest nuggets from the beige book is that housing affordability will likely be a nagging problem for quite a while until the supply of homes comes into balance with demand. Delinquencies and credit demand are good leading indicators for assessing the economic trajectory and given the cloudiness of the outlook, investors will likely experience some choppy markets in the near term, and investors are definitely seeing that in the bond markets. Third, input costs rose in August, unfortunately. The services industry reported paying out more for operating expenses last month, approaching levels last seen in April.

Jeff Roach (02:17):

Bond yields temporarily spiked in the news that inflation could be stubbornly elevated throughout this year. Illustrating what I think is that investors should expect a bumpy ride in the markets. However, business activity has been growing at a slower pace since the end of 2021. As consumers spend down their excess savings and the slowdown in activity will eventually dampen inflation pressures. So, I think the two big challenges facing the Fed right now are the risks that inflation could become entrenched and the risks that the consumer could falter when excess savings dry up. Investors should still find opportunities in domestic equities, especially large caps, but it could be for a bumpy ride. Well, that's all for now. Follow me and the LPL Research team on social media and take care.