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Will August CPI Data Extend the Rally – Sep. 11, 2022

The S&P 500 gained 3.7% last week, closing above its 50-day moving average. Oil prices retreated, while economic data exceeded expectations. The S&P 500’s next hurdle is its 200-DMA. The index needs to rise over 5% to scale its 200-DMA. Investors’ focus is on consumer price inflation this week, the last one before the September 20-21 FOMC meeting.

Stocks reversed their recent losses as investors grew more confident that inflation would moderate. Oil prices extended their decline in August, spurring this optimism. Concerns of oil demand falling in response to global central banks hiking interest rates pressured oil.

The European Central Bank and the Bank of Canada hiked benchmark interest rates by 0.75%, while the Reserve Bank of Australia raised rates by 0.50%.

Federal Reserve Chair Powell said the central bank is “strongly committed” to bringing inflation down. He also stated that a pause in rate hikes or a pivot to cutting interest rates is not coming soon.

Concerns about rising bond yields eased. The yield on the 10-year Treasury note appeared to stabilize around the 3.30% mark after rising in prior weeks.

Hopes of the economy avoiding a recession got a boost from economic reports that pointed to continued resilience. Growth in orders and employment helped the Institute for Supply Management’s service activity index rise in August, while economists expected a decline.

For the week ending September 09, the S&P 500 (SPY) rose 3.7%. All of the 11 sectors advanced.

Energy (XLE) rose the least, while consumer discretionary (XLY) rose the most.

Sector returns for the week ending September 09, 2022

Leading and lagging sectors for the week ending September 09, 2022.

The S&P 500’s top 10 winners included the following:

1. Healthcare Sector

  • Regeneron Pharmaceuticals (REGN) +21% – The week’s top performer in the S&P 500.
  • DexCom (DXCM) +12%

2. Materials Sector

  • Albemarle (ALB) +17%
  • Freeport-McMoRan (FCX) +15%

3. Information Technology Sector

  • SolarEdge Technologies (SEDG) +16%

4. Consumer Discretionary Sector

  • Royal Caribbean Cruises (RCL) +15%
  • Caesars Entertainment(CZR) +14%
  • Norwegian Cruise Line (NCLH) +12%

5. Communication Services Sector

  • Match Group (MTCH) +12%

6. Industrials Sector

  • United Airlines Holdings (UAL) +12%

Top ETFs for the week

The following ETF themes worked well: rare earth metals, uranium, growth stocks, internet and cloud computing. The top ETFs for the week include:

  • VanEck Rare Earth/Strategic Metals ETF (REMX) 11.9%
  • Sprott Uranium Miners ETF (URNM) 10.1%
  • ARK Innovation ETF (ARKK) 9.9%
  • ARK Next Generation Internet ETF (ARKW) 9.6%
  • WisdomTree Cloud Computing Fund (WCLD) 9.6%

Will August CPI Data Extend the Rally into the Week of September 12

* Last Friday’s rally pushed the S&P500 above its 50-day moving average (DMA) after a two-month hiatus. The benchmark’s next hurdle is its 200-DMA, a level commonly seen as the separation between bull and bear markets. The S&P 500 failed to break above its 200-day moving average in mid-August. The index needs to gain over 5% from last Friday’s close to scale above its 200-DMA of 4,275.

* The Labor Department will report the August consumer price index on Tuesday. Economists expect the CPI to show a monthly decline for the first time in over two years due to lower gasoline prices. Trading Economics forecasts the CPI to fall 0.2% in August from July, bringing the year-over-year change in the CPI down to 8.1% from 8.5% last month.

* Data on the August Producer Price Index and retail sales are also due. The PPI tracks inflation at the wholesale level, while retail sales provide insights into consumer spending.

* Quarterly earnings reports from software companies Adobe and Oracle are due this week.

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