With the anticipation building for the next CPI report, the main question remains whether the US economy is on track to meet the Fed’s 2% inflation target or if there are more stubborn inflationary trends to deal with.
The unexpected increase in July’s inflation rate from 3% to 3.2% has surprised analysts, although it is still slightly below the anticipated 3.3%. Expectations are now pointing towards a further increase in annual inflation to 3.6%, with a monthly CPI growth of 0.6%, which is higher than the 0.2% increase seen in July. The rise in oil prices is being blamed for this acceleration. However, there is a twist – core inflation, which is seen as a more reliable indicator of underlying inflationary pressures, may decrease from 4.7% to 4.3%.
Mixed inflation signals have led to speculations in the market about potential movements following the release of the August CPI report on September 13th at 8:30 a.m. ET. To get an idea of how previous CPI announcements have affected the market, we can look at the performance of five major ETFs.
On August 10th, 2023, the SPDR S&P 500 ETF Trust (SPY) remained stable following the release of July’s CPI data, but it experienced a 2% decline over the following week. On July 12th, 2023, after June’s CPI report, the SPY appreciated by 0.8% and continued to climb by 2% over the next week. Similarly, on June 13th, 2023, after May’s CPI data, the SPY increased by 0.7% on the release day and maintained that level during the subsequent week.
The iShares Core U.S. Aggregate Bond ETF (AGG) fell by 0.7% on August 10th, 2023, following July’s CPI release, and then experienced an additional 1% decline over the next week. However, after June’s CPI data, AGG gained 0.8% immediately and added another 0.8% over the following week. In response to May’s CPI figures, AGG initially dropped by 0.5% but rebounded with a 0.8% rise during the subsequent week.
The SPDR Gold Trust (GLD) saw a 0.1% dip on release day, August 10th, 2023, after July’s CPI, and then experienced a further decline of 1.3% over the following week. After June’s CPI report, GLD surged by 1.4% on the release day and added 0.5% over the subsequent week. In contrast, following May’s CPI, GLD dropped by 0.7% and declined by an additional 0.4% over the following week.
The iShares Russell 2000 ETF (IWM) faced a 0.4% decline on release day, August 10th, 2023, after July’s CPI, and then experienced a further decrease of 3.7% over the next week. After June’s CPI report, IWM rose by 1.1% on the release day and continued to climb by 2.6% over the following week. Similarly, in response to May’s CPI figures, IWM saw a solid 1.1% increase but declined by 1.4% throughout the week.
The iShares 20+ Treasury Bond ETF (TLT) suffered a 1.7% hit on August 10th, 2023, following July’s CPI, and deepened its decline by 2.3% over the subsequent week. Conversely, after June’s CPI report, TLT surged by 1.1% and continued to rise by 2% over the following week. Finally, in response to May’s CPI figures, TLT initially dropped by 1% but rebounded with a substantial 2.1% gain during the subsequent week.
In summary, the upcoming August CPI report has generated market speculation due to mixed inflation signals. Previous CPI announcements have led to varied performance in major ETFs, highlighting the potential impact of the CPI on market movements.
