September and October are historically volatile months, yet the HCM-BuyLine® remains positive.  We expect the market to stabilize and move higher into year-end. When bearish bets are near records and inverse ETF volumes are at all-time highs, we are bullish. Generally, when we see bearish bets hit an extreme, this is a contrarian signal.  That is, when bearish bets are at highs, this is the peak level of bearishness and can mean we are close to a bottom. So, in our view, this is a positive development.  This is another reason we do not think investors should get too bearish here.

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Inflation pressures refused to back down in September, as declines in some major categories that led the surge in price growth earlier this year (e.g., used cars and trucks and airline fares) were overwhelmed by price gains elsewhere (e.g., shelter, food, energy, new vehicles, vehicle insurance, and household furnishings and operations). The Consumer Price Index (CPI) rose 0.4%, above the consensus and the previous month’s gain of 0.3%. Led by a surge in grocery store prices, food jumped 0.9%, more than double the increase in August, and the second biggest gain since July 2008. Energy prices rose 1.3%, led by natural gas. Core CPI, which excludes food and energy, rose 0.2%, also up from the previous month, but less than the consensus of a 0.3% increase.

Shelter, which accounts for about 1/3 of the CPI and is its biggest component, rose 0.4%. Rent spiked 0.5%, the most since May 2001, while owners’ equivalent rent increased 0.4%, the most since June 2006. The reopening of the economy, the end of the eviction moratorium, and the steep climb in home values over the past year are beginning to feed into higher shelter costs and could be a source of upside price pressures for the intermediate term, as we have discussed in previous publications. Shelter and food, essential consumer necessities, together accounted for more than half of the monthly increase in the CPI.

Other CPI categories that posted strong gains included new vehicles (+1.3%), household furnishings and operations (+1.0%), education and communication services (+0.4%), and recreation services (+0.4%). Most were associated with supply chain issues, leading to shortages. In contrast, several categories posted declines, including used cars and trucks (-0.7%), airline fares (-6.4%), and apparel (-1.1%).