Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
The secular downtrend in the markets still remains but we got a nice little reprieve from the heavy selling yesterday. Unexpectedly, the October CPI report came in much cooler than expected which lead to a subsequent, single day rally of 5.5%.
In the news this week, China has begun easing it’s zero-covid policy as economic damage begins to mount. A Lehman moment for Crypto as Crypto-exchange Binance walks away from a rescue of FTX, leaving firm to collapse. And of course, we got that October surprise inflation reading where year-over-year inflation fell to 7.7%.
Prior to the inflation reading, the Federal Reserve Bank of Cleveland was projecting a .7% increase month-over-month of the October CPI print. Even the market was expecting about a .6% increase. But the final tally came in all the way down here at .4%, a surprise to be certain.
Year-over-year, we have now established a pretty clear downtrend in total CPI, falling from 8.2% to 7.7%. Even core CPI is looking very toppy with a small year-over-year drop itself.
In fact, if you closely examine month-over-month core CPI excluding the shelter component, prices actually fell in October. That shelter line item is a notoriously lagging input into the calculation and is not necessarily reflective of current market conditions.
Altogether, this has lowered the odds of another 75 basis point hike from the Fed in December. Just 2 days ago, those odds were above 30%. But currently, the market is nearly fully pricing in a 50 basis point hike.
This effectively gives Jerome Powell permission to ease up on the hawkish stance he’s had for the last 9 months, allowing pressures on the stock and bond market to ease. This is why the market rallied over 5% yesterday.
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1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved November 11, 2022, from FactSet Database.
2.Federal Reserve Bank of Cleveland. Inflation Nowcasting. Monthly (month-over-month). Retrieved November 11, 2022 from https://www.clevelandfed.org/indicators-and-data/inflation-nowcasting
3.Bureau of Labor Statistics. Graphics for Economic News Releases “12-month percentage change, Consumer Price Index, selected categories.” Updated November 10, 2022. Retrieved from https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
4.FactSet Research Systems. (n.d.). Policy rate tracker (Markets). Retrieved November 11, 2022, from FactSet Database.
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