The Lookout | Week of October 10, 2022

The Lookout | Week of October 10, 2022

Investors will have their eyes set on Thursday when the US Bureau of Labor Statistics releases the latest month-over-month and year-over-year CPI figures. Hunter Frey of Catalyst Funds, Rational Funds, and Strategy Shares and Daniel Rudnitsky of SMH Capital Advisors offer their insights on what Thursday’s release could mean for investors.

Major Market Events:

Tuesday, October 11: GB Claimant Count Change (Sep)

Wednesday, October 12: US PPI (MoM) (Sep) & GB Manufacturing Production (MoM) (Aug)

Thursday, October 13: US Core CPI (MoM) (Sep) & US CPI (YoY) (Sep)

Friday, October 14: US Retail Sales (MoM) (Sep)

Hunter Frey, Investment Analyst, Catalyst Funds, Rational Funds, Strategy Shares

• US equities remain in a downward trend as policy tightening and geopolitical risks meet weaker corporate earnings and slower economic growth in Q4. This earnings season may intensify volatility and propel stocks to new lows as the macroeconomic landscape remains troublesome. Investors should stay prepared for downward biased volatility in the beginning half of Q4 with stocks likely to become attractive after the Midterm elections in early November.
• Credit markets also remain in uncertain waters as the hawkish Fed looms over returns. We still believe that managing duration and increasing exposure to uncorrelated asset classes remains the best risk/reward opportunities as spreads remain elevated.
• This week’s CPI inflation print is pivotal for markets as a higher-than-expected inflation reading coupled with a strong labor market may solidify the Fed’s 75 basis point hikes through 2023, increasing the risks of a recession as hawkish monetary policy persists.

Daniel Rudnitsky, SMH Capital Advisors, and Senior Portfolio Manager of an Income Strategy

• The Q3 earnings season starts this week with several large cap names across industries set to report. The economic calendar is also busy, although the primary focus will be on inflation with the producer prices report and consumer prices report set to be released.
• If we have a below-consensus flat PPI reading following two consecutive monthly declines, this could tamp down some inflation fears. However, the CPI comes in on the next day and in our estimation will be higher since lower gasoline prices have previously kept that number down.
• With oil prices rising in the wake of the OPEC+ decision to cut output, it is possible that monthly readings will be higher. Core inflation would then remain well above a 2% pace, keeping the Fed committed to rate hikes until a clear slowdown emerges.