The Department of Labor published inflation data late last week that indicated pricing pressures remain under control. First off, the report itself was remarkable, as the U.S. government remains shut down and has not published economic data for weeks. The feds got this report out because the data was critical in determining cost-of-living adjustments for social security recipients (who vote). It likely will be the last government economic report published for a while, and the content of the report was well received by investors. Overall, inflation was stable month to month through September and, on a core basis, prices ticked slightly lower. Drilling down, the CPI declined 0.1% month over month in September and was running at an annual rate of 3.0%. Excluding the volatile categories of food and energy, the core CPI rate increased only 0.1% for the month and also was running at a 3.0% rate. That's lower than the rate from the previous monthly report. Both rates are above the Federal Reserve's target inflation rate of 2.0%, and continue to be propped up by costs for shelter and transportation. Medical care services costs are also on the rise. All that said, the report was likely tame enough to allow the Federal Reserve to focus on its other mandate -- maintaining a healthy employment environment. We look for the central bank, which lowered interest rates for the first time this year at its previous meeting, to cut again after the meeting wraps up on Wednesday.

Argus has published its latest Portfolio Selector, which features its popular Focus List. Each month, Director of Research Jim Kelleher, CFA, surveys the team of Argus Research industry analysts for their timeliest recommendations out of the company's fundamental universe of approximately 500 stocks. The Focus List typically includes 30 stocks: turnover is high, as Jim typically adds three or four new stocks per month. Below are the latest additions, all of which are rated BUY at Argus.

Treasury bond yields have been declining in recent weeks as concerns have mounted over the slowdown in jobs growth during the summer. Corporate bond yields have headed lower as well, and at a faster rate than Treasury yields. As a consequence, spreads between corporate and Treasury bond yields have tightened in recent months, remaining narrower than historical averages. For example, the spread between AAA-rated corporate bonds and 10-year government bonds in August was 109 basis points (bps), down from 114 bps in May but still lower than the historical average of 122 bps. The gap between the government 10-year bond yield and a BAA-rated bond (still investment grade) in August was 174 basis points, below the historical average spread of 228 bps but narrower by about 15 bps since the spring. We watch these spreads closely for several reasons. First, from an asset-allocation standpoint, tight corporate bond spreads signal that corporate bond prices are above historical fair value, and we may look to under-weight the segment in our model portfolios. As well, from a broad market standpoint, the changes in the spreads offer clues to the bond market's view of corporate financial strength -- which appears to be turning somewhat cautious given the widening spreads. Lately, bond investors are demanding higher interest payments to account for potential default risk. Indeed, bond-rating company Moody's recently concluded that the average risk of default for U.S. public companies reached a post-global financial crisis high of 9.2% at the end of 2024 and is predicted to remain elevated throughout 2025.

Two important inflation reports -- the Consumer Price Index (CPI) and the Producer Price Index (PPI) -- were released this week, both sending a message that pricing pressures are relatively mild, but not as benign as central bankers might prefer. The news for CPI was generally positive, as the annualized headline rate through August was 2.9%, in line with consensus, while the month-to-month number increased four-tenths of a percent. Meanwhile, the core inflation rate (ex-food and energy) rose three-tenths of a percent month to month, and was steady at an annual rate of 3.1%. The two wild cards in the report in recent months have been Transportation Services and Shelter costs, which were both up around 3.5% year over year. Those rates are keeping CPI above the Fed's 2.0% target, though CPI is down from the nosebleed 9% level in 2022. The PPI measures pricing trends at the manufacturing level. Here, the news was better compared to the prior month. In particular, the PPI final demand monthly rate in August was -0.4%, compared to a hot reading of 0.9% in July. The annualized change in the final demand rate was 2.6%, down from 3.1% a month ago. Looking ahead, we continue to expect pricing pressures to ease into 2026 as the housing market cools due to high mortgage rates and the price of oil stays below $90 per barrel (current price around $63). But that low price of oil reflects a new wild card that has entered the forecasting picture: President Trump's trade wars. His tariffs -- should they ever go into full effect -- will almost certainly raise prices, sending the inflation rate higher again. That will put new pressure on the Federal Reserve, which we think -- again, based on the fundamentals -- should be in a position to lower rates two times by the end of the year, starting at their meeting next week.