The S&P 500 posted its worst weekly performance since mid-June, falling 4.78% for the week. The losses came on the back of a solid 3.6% gain last week. 

On Tuesday, the Labor Department released CPI data that showed a 01.% increase from July after no change from the prior month. It was up 8.3% from a year earlier, a slight slowdown due to lower gas prices.  

Core CPI (excluding food and energy) was up 0.6% from July and 6.3% from a year ago. 

All these data were higher than expected which sent the market spiraling down. 

The sell-off continued after FedEx pulled its full-year guidance and warned it would implement cost-cutting initiatives to contend with soft global shipment volumes due to what it sees as a significantly worsening global economy. 

Here are the closing levels on Friday, 16^th September 2022:

	Last	Change	%Change
Dow Jones	30,822.42	-139.40.	-0.45%
S&P 500	3,873.33	-28.02.	-0.72%
Nasdaq Comp	11,448.40.	-103.96.	-0.90%
U.S. 10Y	3.45%
VIX	26.3	0.03	+0.11%

The market was expecting a tame inflation report when it rallied the previous week. 

Some positive data also helped fuelled FOMO buying thinking the market can withstand the Fed. 

Unfortunately, the CPI data poured water over the fire. 

The Fed is all but certain to hike 75 basis points this week. Some are even expecting the possibility of a 100-basis point hike. 

Former Treasury Secretary Lawrence Summers says the Fed will raise rates to above 4.3% to control inflation.  

Summers had said on Tuesday that if there were a choice between a 50 basis-point move and a 100 basis-point one at the Sept. 20-21 policy meeting, the Fed should choose “a 100 basis-points move to reinforce credibility.” 

The quick turnaround in the markets reinforces the belief that you should not fight the Fed. 

Higher rates tend to affect the economy and asset prices. 

However, I would not be surprised if the markets start to price in a peak to inflation and Fed rate hikes and start to buck the downtrend. 

I would be very careful to follow this thinking, as we saw last week, it could be very painful when it is wrong.  

It is more likely that we will see more selling on rallies than buying on dips. 

The time to go long will come, maybe now is not the right time. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years. 

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