Closing Thoughts for the Week

The August inflation report gave the market a good shake last week, but it may ultimately prove to be just what it needed. Investors appear to finally believe what the Fed has been saying for months and that could usher in the return of traditional risk-on/risk-off conditions. During volatility spikes is really where we’ve seen the return of traditional risk-on/risk-off behavior and Treasuries outperforming.

While the headline inflation rate is expected to have come down again in August, the stickier core price increases, such as rents, services and healthcare, may not have peaked just yet. I doubt this changes the path of the Fed’s rate hiking policy, but it does appear that the cycle is being pulled forward a bit. The Treasury market continues to eternally frustrate me.

Friday’s jobs report delivered a mixed set of data that should encourage those hoping for more confirmation of a strong labor market. This is very unlikely to change the Fed’s thinking for the central bank’s September meeting. Stocks are again looking more risk-off here as the gains from the summer rally continue to disappear. I’m still waiting for Treasuries to get out of neutral.