August Inflation Numbers Come in Hot, Stock Market Tumbles
For those hoping that inflation had peaked and would begin coming down, the August CPI report was a punch to the gut.
Overall inflation came in 8.3% higher compared to August 2021, with most economists expecting 8% or lower, causing the stock market to sell off sharply.
The results are troubling, given the steady drop in oil prices over the last two months. Some of it can be explained as the effects of oil pricing having a delayed response to the Consumer Price Index (CPI); companies are still selling goods produced using expensive oil.
However, there are other inflation drivers besides the price of oil, namely supply chain disruptions from the persistent pandemic and Russia’s invasion of Ukraine. The global economy cannot return to normal until these issues are dealt with.
The results will likely lead to an interest rate hike at the Federal Reserve’s meeting next week. Federal Reserve Chair Jerome Powell recently stated at a Q&A session that he was committed to fighting inflation.
The market took the CPI report and the expected September interest rate hike terribly. As of this writing, the S&P 500 is down 3.9%, the Dow is down 3.5%, the NASDAQ is down 4.7% and the Russell 2000 is down 3.5%. It’s a bloodbath. However, like all things in life, there are silver linings.
That stock you’ve had your eye on but are waiting for it to drop? Perhaps this will make it more attractive. Are you reinvesting those dividends? Depressed stock prices mean you get more shares. If you can identify the right company getting unjustly punished by the overall market, you can profit handsomely.
Berkshire Hathaway (NYSE: BRK.A, BRK.B) CEO Warren Buffett stated it quite eloquently when he said:
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Anyone can win in a bull market where everything goes up. It’s not how you do in the good times that will determine your investing success. No, it’s the bad times where your opportunity for success is greatest. Just make sure you’re picking the right company.
And when you do pick the right company on sale, again, refer to Buffett’s advice:
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
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