Energy was one big driver for the August inflation report, as the Consumer Price Index posted its biggest monthly increase of 2023 at 0.6%. The year-over-year change was 3.7%. Energy prices rose 5.6% for the month, which included a 10.6% jump in gas prices. Even removing energy and food costs, the core CPI rose by 0.3%, more than industry estimates.

In spite of this still sticky inflation, the Federal Reserve decided to again pause on any rate hike. The Fed "dot plot" showed FOMC members expect one more hike this year and fewer cuts than original estimated next year. Remains to be seen, of course.

The Fed will meet next October 31 and November 1 with another to come in December.

As a result of the Fed decision (and other economic data - see below), bond yields rose, with the 10-year Treasury eclipsing 4.56% on Sep. 26, its highest since 2007. On Sep. 21, the 2-year Treasury hit 5.19%, its highest since 2006.

Regarding that economic data - We saw a sizeable increase to the unemployment rate in August, the largest since February 2022, jobless claims were well-below industry estimates, and new home sales were down 8.7% for the month. The ongoing UAW strike and possible government shutdown are adding some uncertainty as well, which on Sep. 26 sent the major indexes down by more than 1%.

Sam Stovall, Chief Investment Strategist at CFRA, recapped the recent "pullback", which came after such a strong start to the year, and noted it comes ahead of a period that has, historically, been a good one.

Year to date through July 31, investors were convinced that nothing could derail this market’s advance, since the S&P Composite 1500 (consisting of the S&P 500, MidCap 400, and SmallCap 600 Indices) was higher by nearly 19%, accompanied by gains for all sizes and styles, and nine of 11 sectors.

Then came the traditional soft patches of August and September, in which the S&P 1500 declined a total of 6.1% through September 22, officially placing it in “pullback” mode (a decline of 5.0% to 9.9%), along with all sizes, styles, 10 of 11 sectors, and 82% of all 153 sub-industries and companies in the S&P 500.

With that kind of turnaround, it’s not surprising to hear investors question whether the advance has already run its course and further evasive action is warranted. Well, if history is any guide, for it’s never gospel, investors would be wise to prepare for a recovery, not a further retreat.