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Stocks Decline on Concerns About Lingering Inflation, Workers’ Strikes…

Dumaine Investments Weekly Market Update – September 20, 2023

• US stocks extended their September pullback over the past week, as markets remain concerned about inflationary pressures, productivity, and workers’ strikes. The Fed chose not to raise interest rates at the September meeting on Wednesday—keeping borrowing costs in a range of 5.25-5.50%.

• Chair Powell indicated that the central bank opted for a pause to further evaluate the impact of the cumulative effects of past rate hikes. Nevertheless, he reiterated his concerns about persistent inflation and the challenges ahead in navigating the ‘last mile’ of inflation reduction, and importantly, keeping baseline inflation consistently at the target level.

• The dollar is strengthening again as the US economy defies pessimistic forecasts, while growth falters in China and Europe. The US currency rapidly reversed its declines from July, upending bets on a pullback predicated on the prospect that Fed rate hikes are nearing an end. Now, its revival is evoking memories of last year when the dollar delivered economic shocks by pushing commodities prices higher in global markets and increasing the burden of foreign debts.

• Oil rose to a 10-month high yesterday, as global benchmark Brent crude topped $95/barrel for the first time since November, extending a strong rally that continues to spur inflation. Supply cuts from OPEC+ tightened the market, with Saudi Arabia’s energy minister declining to indicate any change in course. The tighter market has led to a multitude of predictions that $100/barrel oil could again be on the horizon.

• As the quarter comes to a close, all eyes will be on next week’s official GDP and inflation data. With at least one additional rate hike expected in the fourth quarter, any upside surprise to inflation could serve as a meaningful shock to markets.

DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.