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Last week was another down week for the major market indexes brought on by the August Consumer Price Index (CPI), which came in worse than expected. Because of this, the stock market experienced its worst day since June 2020.

The major market indexes experienced their fourth losing week in five. The Dow lost 4.1 percent, the S&P 500 declined 4.8 percent, and the Nasdaq Composite dropped 5.5 percent. Market traders are now calling the summer rally nothing but a bear market bounce.

Last Tuesday, the release of the August CPI caused the Dow Jones Industrial Average to fall 1,276.37 points, or 3.94 percent, closing at 31,104.97. The S&P 500 sank 4.32 percent, and the Nasdaq Composite plunged 5.16 percent, finishing the day at 11,633.57.

Only five stocks listed on the S&P 500 closed in positive territory. As with other recent market pullbacks, tech stocks were hit especially hard. Facebook (Meta) lost 9.4 percent, and chip maker Nvidia fell 9.5 percent.

The August consumer price index report came in with a higher than expected inflation number. The headline inflation number rose 0.1 percent month over month, which was a surprise given the falling gas prices.

Core inflation increased 0.6 percent month over month, and for the year-over-year number, inflation remained high at 8.3 percent. Excluding food and energy costs, the consumer price index was up 0.6 percent from July’s report and an increase of 6.3 percent from August 2021.

Economists had expected a decline of 0.1 percent for overall inflation and a 0.3 percent increase for core inflation.

As mentioned, the market tanked after the release of the CPI, mainly because most traders were concerned that the Federal Reserve is going to push the economy into a recession. The August CPI report almost guarantees the Fed will raise rates by 0.75 percent at their next meeting this week.

The CPI report is the last report to be issued before the next Federal Reserve meeting starting on September 21^st. If the Fed does increase rates by another 0.75 percent, it will be the third consecutive 0.75 percent interest rate hike. The CPI rate could cause the Fed to continue its aggressive interest rate hikes longer than many investors once believed.

According to CME FedWatch, there is a 34 percent probability of a 1 percent increase at the next Federal Reserve Meeting. There is a 66 percent probability of a 75 basis point increase, down from a 91 percent chance the day before the CPI came out.

Markets also fell sharply because of a warning from FedEx. The shipping company withdrew its full-year guidance, stating it will begin cost-cutting efforts to contend with the soft global shipping volumes. They also see the global economy as significantly worsening.

The shares of FedEx plunged 24 percent at the open and finished the day down 43.68 points or 21.32 percent, and at a 52-week low. Shares of other shipping companies also fell, with UPS losing 4.5 percent and XPO Logistics falling 4.7 percent.

On Wednesday, the producer price index (PPI), which is a gauge of prices received at the wholesale level, fell 01.1 percent. Excluding energy, food, and trade services, the PPI rose 0.2 percent. This is in line with what economists had expected for the headline PPI.

The headline PPI year-over-year increase of 8.7 percent is a sizable pullback from the 9.8 percent increase in July and the lowest year-over-year gain since August 2021. The drop in prices was mainly from a decline in energy prices.

The yield on the 10-year U.S. Treasury bonds rose for the seventh week in a row. The yield was up 3.45 percent, which is up from 3.32 percent a week ago and up from 2.64 percent at the end of July. The yield curve is inverted, with the 2-year Treasury yield up to 3.87 percent, its highest level since 2007.

Consumers continue to shop as U.S. retail sales unexpectedly rose during August by 0.3 percent compared with a decline of 0.4 percent the month before. Excluding gasoline sales, retail sales rose 0.8 percent in August. These figures are not adjusted for inflation.

This week’s economic calendar:

• Monday: Housing market index
• Tuesday: Housing starts
• Wednesday: Existing home sales
• Wednesday: The Federal Reserve announces the new interest rate
• Thursday: Weekly unemployment claims

The major market indexes broke a three-week losing streak with nice gains. Friday was a good day for the markets as the Dow Jones Industrial Average gained 377 points or 1.19 percent, the S&P 500 climbed 1.53 percent, and the Nasdaq composite gained 2.11 percent.

For the week, the Dow Jones Industrial Average rose 2.66 percent, the S&P 500 gained 3.65 percent, and the Nasdaq jumped 4.14 percent. These gains came in spite of the expected Federal Reserve rate hike later this month.

A good earnings report and third-quarter guidance above expectations from DocuSign caused the stock to surge more than 10 percent. Another good earnings report and good third-quarter guidance from Kroger also helped the market gain later in the week.

On Thursday, Federal Reserve Chairman once again reiterated just how important it is to get rid of this current inflation before the public becomes too used to these high prices and starts expecting them as normal.

During his recent comments, Powell said that expectations play an important role and were the main reason why inflation was so persistent in the 1970s and 1980s. Chairman Powell seems to have learned from past mistakes.

“History cautions strongly against prematurely loosening policy, and I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done,” Powell said at a question and answer session presented by the Cato Institute.

This was Powell’s last scheduled appearance until next week’s Federal Reserve meeting on September 20-21. The markets are now anticipating and pricing in a 0.75 percent rate hike, which will put the Fed rate set range between 3 percent and 3.25 percent.

The stock markets didn’t seem troubled by the hawkish comments, but the two-year Treasury yield jumped nearly five basis points to 3.49 percent.

There have been a few signs that inflation is easing in some areas like gasoline, which has been dropping steadily since topping $5 per gallon earlier this year. But other areas, especially housing, have remained stubbornly high.

Other reasons for this inflation are still related to the pandemic and supply and demand issues. During the pandemic, while Americans were getting stimulus checks and other extra benefits, savings hit some of the best levels in years. Once the pandemic eased, Americans were able to get out and use those savings to buy products and services, some of which are still in short supply.

On Tuesday morning, September 13, the Bureau of Labor Statistics will release the consumer price index (CPI) for August and give the Federal Reserve and the rest of us an idea of how the fight against inflation is working.

Economists expect a 0.2 percent increase in the headline CPI after coming in flat for July. The year-over-year increase for July was 8.5 percent.

Powell also commented on how robust the labor market has been and that it is maintaining strong hiring levels despite the interest rate increases.

“What we hope to achieve is a period of growth below trend, which will cause the labor market to get back into better balance, and that will bring wages back down to levels that are more consistent with 2 percent inflation over time,” commented Powell.

Federal Reserve Vice Chairman Lael Brainard also vowed to continue the fight against inflation and said that rates will continue to increase and will stay higher for longer. But she also said that the Federal Reserve is aware of overdoing tightening, and decisions will continue to be dependent on the data.

Despite rising interest rates and the fear of a recession, the labor market continues to be strong with no signs of weakening. Last week, the number of first-time unemployment benefit claims fell by 6,000 to 222,000.

The initial weekly claims figure was lower than economists’ expectations of 240,000 and has stayed at its lowest level for over three months.

The demand for mortgages continues to fall as mortgage applications dropped 1 percent and are now 23 percent lower than the same week one year ago. According to Mortgage News Daily, the average for a 30-year fixed rate mortgage was at 5.97 percent last Friday, which is 3.02 percent higher than a year ago. On Monday, September 6, the 30-year fixed rate mortgage spiked to 6.25 percent

This week, all eyes will be on the consumer price index, which will be released before the bell on Tuesday morning at 8:30 am EDT.