Your premarket read, what moved overnight, and what it means for long-term investors. A 3-minute brief from Kodiak Capital Advisors.

The Setup

August inflation landed at 8:30 this morning: consumer prices rose 0.4% in the month, putting the annual rate at 3.4%. Gasoline did most of the damage, it climbed 3.9% and accounted for more than a third of the monthly increase. The war premium in oil is now showing up in the official inflation number, four days before the Fed decides what to do about it.

Stocks

Futures were pointing higher into the number, S&P 500 contracts up about 0.5%, Nasdaq 100 about 0.6%, after four consecutive losing sessions. Two things did the lifting: Oracle beat on both earnings and revenue and traded up sharply overnight, and oil finally backed off, with West Texas Intermediate slipping below $100 a barrel. Our read: notice how quickly the mood turned. Four down days, then one earnings report and a softer oil tape, and the tone flips. Nothing about the underlying economy changed between Thursday afternoon and Friday morning. Sentiment is the fastest-moving thing in markets and the least useful to act on.

Rates & The Fed

Treasury yields have been grinding higher all week. The 2-year, the maturity that tracks Fed policy most closely, sits near 4.44%, and the 10-year has been hovering around 4.8%. After the inflation report, traders leaned further toward a quarter-point hike at the September 15–16 meeting, and some are now pricing a second one before year-end. Plain English: the Fed is being pushed toward tighter policy by an inflation number it can't fully control, since it has no lever over the price of crude. For you, the practical effects are unchanged and worth repeating, borrowing stays expensive, existing bonds get marked down as newer ones pay more, and cash continues to pay you a real return for being patient. Fed officials have been in their pre-meeting quiet period since Saturday, so nobody will be softening the message before Wednesday.

Commodities & The Dollar

Oil is still the whole story. Brent topped $108 on Thursday, its highest of the conflict, before easing back toward $106, with WTI under $100 after the International Energy Agency trimmed its demand forecast for the year. Gold opened at its lowest level since early August, near $4,350 an ounce, though it firmed after the inflation print. If crude keeps retreating, September's inflation report will read very differently than August's, energy cuts both ways.

What It Means For You

There are two kinds of inflation, and they deserve different reactions. Inflation from an overheating economy, too much demand, too much wage pressure, is stubborn and takes years of tight policy to wring out. Inflation from a supply shock, like a war disrupting oil, can reverse as fast as it arrived. What we got this morning leaned toward the second kind: headline prices pushed up by gasoline, while prices excluding food and energy ran roughly a point below the headline rate. That distinction is the difference between a genuine change in the long-term picture and a temporary squeeze on household budgets. The honest counsel is that neither one justifies rebuilding a twenty-year plan on a Friday morning. Check that your next two or three years of spending sit somewhere that doesn't need oil or the Fed to cooperate, keep the long-term money diversified, and let the noise be noise.

On Deck Today

• University of Michigan consumer sentiment, 10:00 a.m. ET — the preliminary September read. The line to watch isn't the headline mood, it's the inflation-expectations figure; the Fed cares whether households expect high prices to persist.
• The Fed's quiet period runs through September 17 — no officials speaking, so this morning's data is the last word before the decision.
• The FOMC meets Tuesday and Wednesday, September 15–16 — everything this week has been a warm-up for that.

A note from Kodiak

Markets give you a new reason to react every single morning. Our job is to help you tune out the noise and keep your plan on track. If you'd like a second opinion on how today's headlines fit your portfolio, book a 15-minute intro call →.

Written by Jeffrey Mansell, Kodiak Capital Advisors, LLC.