Wall Street is kicking off a new month and a new quarter. The Fed's favourite inflation gauge showed prices rose roughly 3.4% in August — slower than expected. But the economy is still strong. Private companies added more jobs than expected last month and growth from spring was revised sharply higher. Helping us make sense of all of this is Eric Criscuolo, Strategist at the New York Stock Exchange. Eric, thanks for being with us.
Of course, Johny, always a pleasure.
Inflation came in cooler than expected this week. Is this good news for investors or is it still too early to celebrate?
Still too early to celebrate. There was a lot of hawkish Fed commentary coming right out of the last meeting, and expectations for rate hikes went up on that. But then New York Fed President John Williams came out and said maybe there is not a real urge to raise rates at the October meeting. That kind of helped markets settle down. The PCE data was a little cooler than expected — still high, but trending in the right direction. On top of that was a GDP print — they revised growth higher. So the economy is running hot-ish. Maybe they do not hike in October. But it is still probably a hike sometime between October and year end. That is still a likely scenario.
The ten-year Treasury yield hit its highest level since the early 2000s this month before pulling back. Why do yields matter so much for stocks?
Yield is the price of money. And you benchmark everything to how much it costs to do something. All valuations — how you value stocks, commodities, assets — are based off the yield number. The US Treasury is the safest investment there is. Everything around the world is priced off how much, how expensive the Treasury bond is. Which means — where are yields? Are they high? Are they low? Is money expensive or cheap? All of that flows into the calculation of should I buy a stock or a bond or gold or Bitcoin. And it also shows you whether money is easy to get — if it is, stocks do better. If it is harder to get, stocks may not perform as well.
What is the Fed going to be watching most closely from now until year end?
They are pretty happy with where the job market is. It does not seem like anyone at the Fed is really concerned about anything happening there. So everything pivots back to inflation. They are going to be looking at the PCE data, the CPI data updates. They also talk to businesses in their districts — what are you seeing, are you raising prices, what is the consumer doing. That information feeds into their decision. Inflation is going to be the absolute main driver of their decisions going forward.
How much of a risk is energy to inflation and consumers heading into the holidays?
It is a huge risk. Every time you fill up your car, if you do not have an EV, you are paying for gasoline. As that price goes higher, it is more out of your pocket that you cannot spend elsewhere. But it also filters through the entire economy — trucks, freight, shipping. If diesel goes up, shipping costs go up. If shipping costs go up, the prices of everything being shipped go up. Even if you strip out gasoline from the inflation number, it still trickles into everything else.
Heading into the holiday season — how is this going to impact spending?
The consumer looks okay in aggregate. There is definitely some stress at lower income levels. But consumer spending is holding up very well — we saw that in the GDP print. A lot of companies have come out and said they are going to lower prices on certain things to try to help the consumer, at the expense of their margins. Everyone is looking for cracks in the consumer and we have not seen it yet. But that does not mean it cannot happen. What companies do into the holiday season is definitely something to watch.
Eric, thank you so much for joining us. Always a pleasure.
Thank you for having me.
