The Bureau of Labor Statistics released its August inflation report on Wednesday, revealing a higher level of inflation than anticipated. This has brought back concerns about inflation that have been dormant for over a year.
Many economists now believe that the Federal Reserve’s plans to maintain interest rates in the upcoming week are almost certain, with market sentiment indicating a probability of no September rate hike exceeding 94%. However, the outlook for the November meeting remains uncertain, with the likelihood of a rate hike hovering around 43%.
Let’s examine the immediate responses of five prominent ETFs following the release of the CPI report on Wednesday.
The Consumer Discretionary Select Sector SPDR Fund (XLY) performed well, gaining 0.4% during the morning session in New York. It was the top-performing sector within the S&P 500. This suggests that rising consumer prices could lead to higher profit margins for retail companies. Amazon Inc. (AMZN) and Tesla Inc. (TSLA) were the key drivers behind this sector’s rise, with gains of 1.4% and 1.3% respectively.
The semiconductor industry responded positively to the August Consumer Price Index report. The VanEck Semiconductor ETF (SMH) saw a 0.9% daily increase, with most of its holdings delivering positive performances except for Intel Corp. (INTC). Advanced Micro Devices Inc. (AMD) led the charge in this sector, posting a daily performance increase of 2.1%, closely followed by Micron Technologies Inc. (MU).
Contrary to expectations, the technology sector was not greatly affected by the higher-than-anticipated inflation report. The Technology Select Sector SPDR Fund (XLK) managed to secure a 0.5% positive performance for the day. The positive impact from the semiconductor sector played a significant role in this success. Additionally, Adobe Inc. (ADBE) emerged as one of the top performers, registering an impressive 3% gain.
Wednesday proved to be a challenging day for regional bank stocks, with the SPDR Regional Banking ETF (KRE) slipping by 1%. This extended the monthly decline to almost 9%. Zions Bancorporation (ZION) was the main cause of the industry’s decline, experiencing a 4.4% drop.
Long-Term Treasury Bonds
Long-term Treasuries continued to face difficulties, as shown by the iShares 20+ Year Treasury Bond ETF (TLT), which dipped 0.4% during the session. This decline was driven by a slight increase in thirty-year yields. The persistent threat of inflation could potentially keep interest rates higher for an extended period, supporting yields on the longer end of the Treasury yield curve. The TLT ETF has experienced an 8% decline over the past three months and a nearly 12% decrease over the past year.