J.D. DURKIN : OK, so let's talk about some of the prints this week when it comes to CPI, PPI retail sales. Buzzwords like hotter, cooler, inflationary, these words get thrown around a lot with not very much context. Sarge, combine your experience as a trader and an investor for us. What does what we learned this week actually mean for the average investor watching at home?
STEPHEN GUILFOYLE: All right. What it means is, well, you heard from a lot of the other guys, we saw hotter consumer level inflation, hotter producer level inflation, but largely, only because of outdated shelter data, which really has been, it's inflated the number, but it's going to suppress the number going forward, and energy. Energy was really the big what has changed this summer.
It's what, up? Oil is up, like, 30-something percent since June, I think. So that's really been what's been taking a huge bite out of the consumer's ability to, I guess, to do what they want to do, to Act in a discretionary way with their dollars. And we saw that with the retail sales.
I mean, the numbers at the headline look fine. But once you look into the actual sectors where money is being spent, you find out that it's almost all being spent on gasoline, with maybe a little bit on back to school items, like electronics and clothing, but almost everything was down. I mean, if you look at what I call the "fun index", which is sporting goods, hobbies, books and music, that line was down 1.6% for the month.
So basically, people are not spending money on anything they like, they're spending money on what they have to buy. So it was really, I think, a poor month for retail sales. Going forward, I think what Jerome Powell is going to have to do next week-- We know that the Fed is not going to change rates next week.
I think they priced it at a 97% probability that there'll be no change at all. But he's going to have to open up optionality, open up flexibility, which means he's going to have to be hawkish when he speaks. Or maybe within the dot plot or in the economic projections, they're going to have to send a somewhat hawkish message. Because right now, Fed futures markets, although they do have that November hike, the potential for November hike back up to maybe 41, 42%, yesterday during the afternoon, it fell from 41% to 32%.
That's why you got a rally yesterday. It's being erased right now. We need to see that, I think, closer to a 50/50 chance moving through October towards November after they do not hike in September. Because I think the Fed right now feels like they're being put into a corner and they're not going to be able to act if they need to without surprising the market. I think they'd much rather be able to act when and if they need to without causing a big brouhaha.