Inflation came in hotter than expected this morning, driven mostly by energy. Consumer prices rose 0.6% in September, lifting the annual rate to 3.7% from 3.4% in August. Gasoline jumped 9.1% in the month and accounted for more than half of the increase. Gas is up 34% from a year ago, energy overall is up 20% and fuel oil is up 74%. Airfares are up 22%.
Grocery prices went the other way. Food at home fell 0.1%, with meat, poultry, fish and eggs down 0.5%, dairy down 0.9% and milk down 2%.
Core prices, which strip out food and energy, rose 0.3% against 0.2% expected, and the annual rate climbed to 2.6%. That’s the number the Fed watches, and it keeps an October hike on the table. The Fed can raise rates and make borrowing more expensive, but it can’t produce more oil. Higher fuel costs work their way into airfares, deliveries and restaurant bills no matter where rates sit.
Stocks opened lower, and our momentum readings are taking the hit. Equal-weight S&P is negative at -26. Small caps are getting hit hardest, with the Russell’s daily reading at -87.1. Financials have 26 breakdowns against 2 breakouts, and Bank of America is lower after disclosing a $1.21 billion regulatory fine. Healthcare, energy and staples are holding up, with healthcare still the strongest group on our board.
With equal weight turning lower, financials breaking down and FAZ breaking out, we wouldn’t be selling put spreads after this report. Let the dust settle and see if the market can find a level where it gets some traction.