Markets notch another win, despite Milton and sticky inflation

MANHATTAN (CN) — The weight of Hurricane Milton’s devastation and sticky inflation reports should have pulled down investors, but Wall Street still managed to set a few new records.

Despite some early rough patches, by the week’s end the Dow Jones Industrial Average gained 511 points while the Nasdaq rose by 205 points. The S&P 500, which is on a five-week winning streak, finished the week up 113 points to hit a new high of 5,815 points.

Wall Street was not bogged down by the destruction caused by Hurricane Milton, which experts predict could reduce gross domestic product by up to 0.4%, nor by the pair of inflation reports showing inflation has been beaten back but not yet vanquished.

The consumer price index, the worst of the two monthly reports, came in hotter than expected with a 0.2% increase in prices last month and a 2.4% annualized inflation rate. While the index came in at the same level it had for August and July, investors had hoped for merely a 0.1% increase.

Core inflation, which excludes food or energy prices, picked up by even more, gaining 0.3% in September. Gasoline prices actually fell by 4% month-over-month, which should help with

While the CPI data caused markets to dip on Thursday, analysts say it shouldn’t deter the Federal Reserve from its plan to keep cutting interest rates.

“The Fed needs to continue to normalize interest rates to keep the economy on the path toward a soft landing,” Ryan Sweet at Oxford Economics wrote in an investor’s note.  He noted September’s CPI “doesn’t signal a reacceleration in inflation” and suggests the Fed may still cut rates by 25 basis points when it meets again next month.

The producer price index released Friday was slightly better, showing prices gained 0.2%, which was in line with expectations. Over the last year, the PPI shows a gain of 1.8% in prices.

The PPI was helped largely by the massive drop in gasoline prices, which came in at 5.6% in that index. However, even excluding volatile energy prices – as well as the large 1% increase in food prices – the core PPI gained only 0.2%.

“Bottom line, inflation is clearly not dead,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Services. He added the focus show now be on “keeping it down … and only after it stays down for a while to come can we declare victory.”

Fed minutes

Minutes from last month’s Federal Open Markets Committee meeting shows the central bank was conflicted about its vaunted 0.5% cut to the federal funds rate.

Experts say the minutes show the influence of Fed Chair Jerome Powell, who convinced all but one of his colleagues that a “catch up” rate hike of 50 basis points instead of 25 basis points was necessary.

The expectation now is that the Fed will take a more measured approach to interest rates to round out the year. The current rate sits at 3.5% to 3.75%, and most expect the rate to drop to 3% to 3.25% by year end.

Consumer sentiment has not improved much, though, with the University of Michigan’s preliminary index showing a slight 1.2-point fall to a three-month low. Experts say the decline was likely due to the impact of Hurricane Helene, though the university stated that “high prices and inflation remain at the top of consumers’ minds.”

The National Federation of Independent Business’ survey also showed that uncertainty is high among small businesses, with the uncertainty index rising to its highest point in the survey’s history.

“Small business owners are feeling more uncertain than ever,” said NFIG Chief Economist Bill Dunkelberg in statement. “Although some hope lies ahead in the holiday sales season, many Main Street owners are left questioning whether future business conditions will improve.”

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