Inflation concerns continued to weigh on stock prices last week. With the exception of the Dow Jones Industrial Average, which was flat, the major averages had moderate declines last week. The Nasdaq Composite was the most affected with a -1.2% return for the week. The S&P 500 fared somewhat better with a -0.8% decline.
On Friday some inflation concerns were eased when the government released its report on consumer prices for September. The Consumer Price Index (CPI) jumped 1.2% during this time, which represents the largest gain in a quarter century. This jump was largely expected in the wake of Hurricane Rita, as the CPI takes into account energy prices. However, the core CPI, which excludes volatile food and energy costs, was up only 0.1%. This increase was less than expected and suggests higher energy prices have not yet significantly seeped into other areas. The CPI reading will help to ease concerns that the Fed will have to raise interest rates significantly from current levels.
The latest reports suggest the economy remains robust. Retail sales have been quite strong despite a drop in Consumer Sentiment, which can be largely blamed on the hurricanes and energy prices. Consumers are likely to remain on edge while energy prices remain high, but as long as unemployment rates remain low, consumers should continue to spend. The business sector and government hurricane rebuilding effort will affect any slowdown in consumer spending. Furthermore, wages and salaries grew 3.5% for the 12 month period ending in August.
This week’s calendar is light on economic news, which should keep a brighter spotlight on earnings reports. A clear majority of companies that have reported earnings beat estimates. This is a trend that Insight expects to continue. Providing that fourth quarter guidance is positive and energy prices stabilize or fall, stocks should do well and offer a good investment for those with a 12-month investment horizon.
This article highlights the commentary of Jim Collins for the Zacks.com audience. Jim Collins provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "OTC Insight" newsletter. Try it free for 30 days and see if you can improve your investment performance. Learn more about "OTC Insight" and 30-Day Free Trial. And get immediate access to current issues and special reports. Click here now.
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