As Consumer Price Index Indicates Inflation, Automakers Take a Hit

by: Chris Krasowski

The week of the last Federal Reserve decision of the calendar year ended on another bearish note. Markets continued to pile up losses after the Fed's 25 basis point rate cut. Major indices in the US fell about 1.3%.

For the week, the Dow Jones is down 285 Points, or 2.1%, but from the pre-Fed peak the major average is down over 400 points ending the week at 13340. The catalyst Friday was the American Inflation Report. Consumer Inflation in November rose by its highest total in over two years, led of course by every one's favorite commodity: Energy! Gasoline Prices were the major source in the increase in inflation, which caused Friday's market sell-off.

The CPI (Consumer Price Index), which is the main measure of inflation rose 0.8%, and even the core inflation number, which does not include energy, rose 0.3%. Traders were spooked by this as the Fed is treading a fine line between doing what's right for the economy and the crumbling credit markets and balancing the inflationary effects of lower interest rates. The dreaded "Recession" word came up again as fear of higher inflation data will lead to a pause in interest rate cuts by the Federal Reserve in the future. When Traders talk Recession, growth stocks are the hardest hit, as the logical thinking is, growth is driven by positive country-wide economics.

The hardest hit sector today was consumer based.
More Logical trader thinking;
Recession fear = Folks Spending less money!

Especially on big ticket items, so the big automakers saw selling. Toyota (NYSE:TM), Daimler (DAI), Nissan (OTCPK:NSANY), Honda (NYSE:HMC) all were off more than 2.5%.

Although, most of America is probably concerned with what's going to happen to "The Rocket" Roger Clemens, after being named in detail in the substantial baseball steroid investigation.