U.S. stocks recovered on Friday, but the inflation report offered little comfort to the Fed. The annual core-inflation rate fell while monthly price growth accelerated, making next week's rate decision and the bank's message about what comes next more important.

An intraday fall in oil also does not mean that the energy risk is over. For the stock-market recovery to continue, the path of oil supply and borrowing costs will matter as much as companies' operations.

Key takeaways

  • Annual inflation can fall while the latest month's price growth accelerates. The two measures compare different periods; looking only at the annual figure can miss the cost pressure building over recent weeks.
  • Expectations of a rate increase and an actual rate decision are separate things. Investors can price a decision in advance; whether expectations are met on meeting day matters, but how the next steps are described also affects stocks.
  • I am watching whether software joins the recovery in chip companies. Buying in a narrow group of companies is not enough to say that the same improvement has begun across the technology sector.

What happened?

  • According to the U.S. Bureau of Labor Statistics' September 11 release, U.S. August CPI rose 0.4% month on month and 3.4% year on year. The core index excluding food and energy rose 0.3% month on month; its annual rate fell from 2.5% to 2.4%. The headline annual rate was unchanged, while both headline and core monthly increases accelerated from July.
  • Gasoline's 3.9% monthly increase accounted for more than one-third of the total consumer-price rise. Shelter prices also rose 0.3%. Energy is an important cause, but explaining the latest month's move only through oil would overlook the rise in core items.
  • Saudi Arabia's Ministry of Energy said in a September 11 statement that the East-West Oil Pipeline had been closed as a precaution after attacks the day before. Disruption to one of the alternative routes to Hormuz also increases the energy-supply risk. The statement did not give a date for reopening the pipeline.
  • Market commentator Tunç Şatıroğlu (@tuncsatiroglu) expects another short-term rise in Nasdaq but remains cautious about taking new risk. The distinction here is about duration: an expectation of a move over a few days does not mean an equally strong outlook for the coming months.

What changed since yesterday?

  • Yesterday's note was waiting for the inflation data and asking whether a turn would come after the sell-off. The data arrived and stocks recovered. The test is now less the direction of the first reaction than whether gains can be held after the Fed meeting.

Market levels

U.S. stocks and technology

  • SPY ($SPY), which tracks the S&P 500, rose 0.85% on Friday to close at $764.29. $760, the level market commentator Bora Özkent (@boraozkent) had been watching in an earlier analysis, was reclaimed; that area now needs to hold as support. $770 remains important resistance above, while Thursday's low of $756.64 is below.
  • QQQ ($QQQ), which tracks the Nasdaq 100, rose 0.87% to $714.88. Moving above the $712 from the previous note is the first recovery step; $720 is the next threshold. If this area is cleared, room could open for the rise to continue. If $712 cannot hold as support, the strength of Friday's gain will be questioned.
  • SMH ($SMH), which tracks chip companies, rose 1.47% to close at $568.53. The $563 highlighted by Tunç Şatıroğlu is being watched as support, while $580 remains strong resistance above. Seeing a higher intraday price does not mean that price has established itself there.
  • IGV, which tracks software companies, rose only 0.32% to $101.52. Friday's low of $101.13 is a nearby support candidate; the day's high of $102.78 is the first resistance. Software needs to reclaim $106 and $108 before the recovery looks convincing.

Oil, bonds and precious metals

  • Brent fell 2.81% on Friday to close at $104.61. $100 is a candidate for psychological support; Thursday's close at $107.63 can be watched as the first resistance above. A return to the $95-$96 area I had previously been following would bring more visible relief for company costs and inflation.
  • TLT ($TLT), which tracks U.S. Treasuries with maturities longer than 20 years, rose 0.11% to close at $80.87. When bond prices rise, yields fall, but this fund's response was quite limited compared with stocks. The previous $80.67 support candidate is holding; reclaiming Friday's roughly $81.48 resistance area matters for strengthening the recovery.
  • The gold ETF GLD ($GLD) rose 0.61% to $398.77. Some of the intraday buying did not carry through to the close. Thursday's $395.45 remains support below. Reclaiming $401.15 above is the first threshold; Friday's high of $403.65 is the next resistance.
  • The silver ETF SLV ($SLV) rose 1.08% to $58.12, recovering a small part of Thursday's loss. A renewed recovery can be attempted while $57.38 holds as support. The first threshold is $58.73; until $60.16 is reclaimed, the effect of the earlier sharp fall has not disappeared.

Red flags

  • If oil becomes a supply problem that goes beyond maritime transport, it could also reduce the protection offered by alternative routes. The duration of the disruption and the volume actually being transported matter more than a news headline.
  • If bond prices fall again while stocks rise, financing conditions are not improving by the same amount for companies. This divergence could limit the recovery, especially for companies expected to earn a large share of their profits in the future.

Calendar

  • September 15-16: Fed rate meeting (FOMC) and economic projections. Alongside the rate decision, inflation and growth projections will be watched to understand the bank's next steps.

My analysis

I am not giving too much weight to a single inflation rate when assessing this rise. The fall in annual core inflation is positive; the monthly acceleration reminds us that the same relief may not continue. If expensive energy spreads into production and transport costs, it will become a harder test both for companies to pass those costs on to customers and for them to protect profits.

Next week I will first look at the Fed's reasoning, then at how the market responds to it. If borrowing costs ease and the rally broadens across more sectors, my confidence in Friday's buying will increase. If the oil-supply disruption lasts, bonds weaken and stocks lose the areas they reclaimed, I will prefer to remain more cautious. A single positive close cannot answer all of these questions.

Sources

This is not investment advice; it is a research and monitoring note.