Consumer Price Index (CPI) data for August, released last week, made headlines after its 1.9% year-over-year headline increase in prices exceeded expectations of 1.8%. This was significant given that the last five monthly CPI reports fell short of market forecasts. Major drivers included higher gas prices (due largely to refinery shutdowns stemming from Hurricane Harvey) and a 3.3% increase in the cost of housing.

Energy and housing are among the largest components of the CPI basket (which is set by the Bureau of Labor Statistics [BLS]), and therefore have the most impact on the overall headline inflation number. However, inflation’s impact on you depends on what you actually buy each month. With this in mind, we think it can be both instructive and fun to look at the underlying items in the CPI basket to determine which saw the largest price gains and losses, regardless of the BLS’s idea of relative importance:

While gasoline and other types of fuels made up four of the top 10 price gains (even more if individual grades of gasoline are considered), another somewhat surprising trend showed up—breakfast. Bacon and related products saw the largest price increases in the CPI basket, at 12.5% year over year. Frozen noncarbonated juices and drinks were also in the top 10, with a 6.6% year-over-year gain (another area that saw potential hurricane impacts, though this time from Hurricane Irma).

So the bad news is that if your breakfast routine includes bacon and orange juice, you’re probably spending more money than you were a year ago. But, if you’re flexible in your breakfast options, you might consider alternatives that saw prices decline year over year, including: Breakfast sausage (-1.4%), eggs (-3.7%), breakfast cereal (-0.8%), and fresh whole milk (-1.1%).

Bacon and orange juice are very small components of the overall CPI basket, and therefore inflation in these areas doesn’t add much to the overall headline number. However, looking at the individual items in the basket can help explain why the impact of inflation can sometimes be felt more in our individual pocketbooks than the headline number would suggest.

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor Member FINRA/SIPC

Tracking # 1-647240 (Exp. 09/18)

Market Recap

• Markets dip as traders digest Fed meeting data; Dow -0.2%, S&P 500 Index -0.3%, Nasdaq -0.5%.
• Industrials, financials the only sectors to post gains; industrials helped by strength from its largest component; financials continue run on steeper yield curve prospects, deregulation hopes.
• Low NYSE exchange volume (86.6%); breadth negative (1.4:1).
• 10-year Treasury yield flat at 2.28%. Modest gains for investment-grade corporates.
• Commodities – COMEX gold (-1.7%) to $1294/oz.; WTI crude held near flat ~$50.70/bbl.

Overnight & This Morning

• Asian markets lower after North Korea’s latest statements regarding its nuclear program.
• Europe slightly higher mid-day after strong manufacturing data from Germany, France.
• S&P 500 flat in early trading. Largely ignoring fresh rhetoric from North Korea (details below).
• Traditional risk-off assets getting support from geopolitical concerns. Yen, Swiss franc, gold all modestly higher. 10-year Treasury yield -3 basis points (0.03%) to 2.25%.
• Industrial metals tumble lower. Copper (-1.7%), gold (+0.2%) $1297/oz., WTI crude (-0.2%) $50.40/bbl.

• Geopolitics back in focus. Most Asian markets were lower overnight as investors speculated that North Korea may respond to President Trump’s UN speech with a hydrogen bomb test in the Pacific Ocean. This also follows more sanctions against North Korea, and an order from President Trump to Chinese banks to stop doing business with the North Korean regime.

Macro Notes

• Bank of Japan (BOJ) leaves policy unchanged. As expected, the BOJ maintained the status quo following its monetary policy meeting. However, a new board member dissented from the otherwise unanimous vote, suggesting additional asset purchases would be needed for the BOJ to achieve its 2% inflation target. In contrast, other members foresee either no need to change the current terms of the bank’s asset purchase program or a potential need to decrease asset purchases, though not any time soon. Liquidity in the country’s government bond market is another source of debate given that the central bank holds a ~40% share, though the board assured markets that there were no issues.
• Existing home sales missed expectations in August. On the economic front we saw existing home sales, which came in at 5.35 million, below consensus of 5.48 million and down 1.7% month over month. Year over year they were up 0.2%. Part of the miss was likely due to Hurricane Harvey, with the South down the most at -5.7% month over month.
• Crude oil inventories show a build, while RBOB Gasoline shows a drawdown for the week of September 15. The EIA‘s Petroleum Status Report also showed a build in crude oil inventories, but this report was also likely impacted by Hurricane Harvey, which caused the shutdown of major refineries on the gulf coast. However, any weakness that this report may have caused was offset by more talk of supply cuts from major OPEC and non-OPEC countries, which triggered oil to move higher and close just above $50/bbl. for the first time since the end of July.

Click Here for our detailed Weekly Economic Calendar

Friday

• Markit US Manufacturing & Services PMI (Sept)
• Williams (Dove)
• George (Dove)
• Kaplan (Hawk)
• France: GDP (Q2)
• France: Markit France
• France: Manufacturing & Services PMI (Sept)
• Germany: Markit Germany
• Germany: Manufacturing & Services PMI (Sept)
• Eurozone: Markit Eurozone
• Canada: CPI (Aug)

 Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

 The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

 Stock investing involves risk including loss of principal.

 Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

 Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

 Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

 Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

 Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

 This research material has been prepared by LPL Financial LLC.

 To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

 Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

 Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC
Tracking # 1-647272

Yesterday’s Market Activity

• U.S. equities mixed yesterday. Overall market was little changed as Fed announcement fell in line with general expectations. Dow +0.2%, S&P 500 Index +0.1%, Nasdaq -0.1%.
• Energy sector led, aided by continued rise in WTI crude oil prices. Banks drove financials; healthcare outperformed as well. Consumer staples lagged.
• Above average NYSE exchange volume (100.79%). Breadth was positive (1.3:1).
• U.S. dollar strengthened; 10-year Treasury yield +2 basis points (0.02%) to 2.26%.
• Commodities – COMEX gold (-0.5%) to $1304/oz., WTI crude (+1.64%) to ~$50.3/bbl. Industrial metals rose.
• FOMC held rates steady; balance sheet run-off scheduled to commence next month

Overnight & This Morning

• Asian markets little changed. Nikkei +0.2%, Hang Seng -0.1%, Shanghai Composite -0.2%.
• Stocks in Europe mostly higher on little news. STOXX Europe 600 +0.2%, though U.K’s FTSE 100 is holding flat.
• Crude oil (-0.9%) above $50/bbl. ahead of Friday’s OPEC meeting.
• Industrial, precious metals sharply lower. Gold (-1.8%) to $1293/oz., copper -1.0%.
• U.S. stocks opened flat. Treasury yields similarly unchanged as investors continue to digest yesterday’s Fed statement.
• Today’s economic calendar includes initial jobless claims and September Philly Fed Index.

• The Federal Reserve (Fed) left rates unchanged as expected; however, a December hike is still likely. Investors also received much-anticipated details on the Fed’s plan to unwind its balance sheet, which is slated to start next month. We believe the initial impact to markets will be limited as market participants have had plenty of time to price in this well telegraphed move. Get more insights and takeaways from yesterday’s Fed meeting in our most recent blog post.

Macro Notes

• Bank of Japan (BOJ) leaves policy unchanged. As expected, the BOJ maintained the status quo following its monetary policy meeting. However, a new board member dissented from the otherwise unanimous vote, suggesting additional asset purchases would be needed for the BOJ to achieve its 2% inflation target. In contrast, other members foresee either no need to change the current terms of the bank’s asset purchase program or a potential need to decrease asset purchases, though not any time soon. Liquidity in the country’s government bond market is another source of debate given that the central bank holds a ~40% share, though the board assured markets that there were no issues.
• Existing home sales missed expectations in August. On the economic front we saw existing home sales, which came in at 5.35 million, below consensus of 5.48 million and down 1.7% month over month. Year over year they were up 0.2%. Part of the miss was likely due to Hurricane Harvey, with the South down the most at -5.7% month over month.
• Crude oil inventories show a build, while RBOB Gasoline shows a drawdown for the week of September 15. The EIA‘s Petroleum Status Report also showed a build in crude oil inventories, but this report was also likely impacted by Hurricane Harvey, which caused the shutdown of major refineries on the gulf coast. However, any weakness that this report may have caused was offset by more talk of supply cuts from major OPEC and non-OPEC countries, which triggered oil to move higher and close just above $50/bbl. for the first time since the end of July.

Click Here for our detailed Weekly Economic Calendar

 Thursday

• Initial Jobless Claims (Spet 16)
• Continuing Claims (Sept 9)
• Philadelphia Fed Manufacturing Index (July)
• FHFA House Price Index (July)
• Leading Economic Indicators (Aug)
• Household Change in Net Worth (Q2)
• Eurozone: Consumer Confidence (Sept)
• Argentina: GDP (Q2)
• BOJ: Kuroda
• ECB Publishes Economic Bulletin
• Japan: All Industry Activity

Friday

• Markit US Manufacturing & Services PMI (Sept)
• Williams (Dove)
• George (Dove)
• Kaplan (Hawk)
• France: GDP (Q2)
• France: Markit France
• France: Manufacturing & Services PMI (Sept)
• Germany: Markit Germany
• Germany: Manufacturing & Services PMI (Sept)
• Eurozone: Markit Eurozone
• Canada: CPI (Aug)

 Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

 The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

 Stock investing involves risk including loss of principal.

 Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

 Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

 Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

 Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

 Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

 This research material has been prepared by LPL Financial LLC.

 To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

 Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

 Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC
Tracking # 1-645782