A cooling inflation number ignited a powerful rally on Thursday, sending stocks to strong gains for the week.
The Standard & Poor’s 500 added 5.90%, while the Dow Jones Industrial Average gained 4.15%. The Nasdaq Composite index rose 8.10% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, picked up 5.72%.1,2,3
A lower-than-expected inflation report triggered the biggest one-day stock market gain in more than two years as the news raised investors’ hopes that the Fed might consider easing the pace of future rate hikes. The day’s gains were pronounced in the hard-hit technology sector, as the tech-heavy Nasdaq added 7.35%.4
Stocks initially rallied to start the week, but gave up some of the gains on Wednesday following a muddy and indecisive outcome to the midterms. Friday saw stocks build on their gains to close out an exceptional week.
Consumer prices rose slower in October, increasing 0.4% for the month and 7.7% from 12 months ago. Both numbers were below market expectations of 0.6% and 7.9%. The core CPI (excludes energy and food sectors) rose a more modest 0.3% on a monthly basis and 6.3% from a year ago.5
The deceleration in prices was mainly attributable to price declines in used cars (-2.4%), apparel (-0.7%), and medical care services (-0.6%). Despite the progress, inflation remains well above the Fed’s 2% target rate. A look behind the numbers shows that October’s 7.7% CPI was fueled by the largest monthly jump in shelter costs since 1990 (+0.8%). Shelter costs account for one-third of the CPI. Energy was up 1.8%, while food costs rose 0.6% for the month.6
The way financial media outlets cover CPI is misleading. Annual rates are given as THE inflation number, but that statistic reports the difference between price a year ago and today. How is that the current inflation rate when most of the data is half a year old or more? I think a more relevant number would be to take the change over the last month or quarter and then compound that rate.
For example, core CPI rose 0.3% last month. If you compound that rate over 12 months you get 3.7% which the most CURRENT rate of core inflation available now. Overall CPI was up 0.44% last month, so the total inflation rate is .44% compounded over 12 months: 5.4%.
Compared to the peak of inflation in June when the core number was up 0.7% (which if compounded for 12 months would be 8.7%) core CPI has been cut in half.
Compared to June when the total number was up 1.3% (which if compounded for 12 months would be 16.77%) monthly CPI is more than 2/3 lower.
Prices spiked horribly in June, but since then we have had 4 months in a row of FAR more manageable inflation.
This Week: Key Economic Data
Tuesday: Producer Price Index (PPI).
Wednesday: Retail Sales. Industrial Production.
Thursday: Housing Starts. Jobless Claims.
Friday: Existing Home Sales. Index of Leading Economic Indicators.
Source: Econoday, November 11, 2022
This Week: Companies Reporting Earnings
Monday: Tyson Foods, Inc. (TSN).
Tuesday: Walmart, Inc. (WMT), The Home Depot, Inc. (HD).
Wednesday: Nvidia Corporation (NVDA), Cisco Systems, Inc. (CSCO), Target Corporation (TGT), Lowe’s Companies, Inc. (LOW), The TJX Companies, Inc. (TJX).
Thursday: Applied Materials, Inc.(AMAT), Palo Alto Networks, Inc. (PANW), Ross Stores, Inc. (ROST).
Source: Zacks, November 11, 2022
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Tip adapted from IRS.gov7
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Composting is a great way to go green and keep more waste out of landfills that don’t need to be there. Composting has many benefits, including waste management and reduction, soil enhancement, reduction of greenhouse gasses, and many more.
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Tip adapted from Sustainable Jungle8
I’m usually standing on a city sidewalk, and I’ll always stand by your car. But if you don’t feed me, you may get into trouble. What am I?
Last week’s riddle: Create a 13-letter word using all 13 of the following letters: O A I I S T T R R D N A M. Answer: ADMINISTRATOR.
Preening flamingo, Galapagos Islands, Ecuador.
Footnotes and Sources
2. The Wall Street Journal, November 11, 2022
3. The Wall Street Journal, November 11, 2022
4. CNBC, November 10, 2022
5. CNBC, November 10, 2022
6. CNBC, November 10, 2022
7. IRS.gov, July 19, 2022
8. Sustainable Jungle, August 8, 2022
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Weekly Market Insights: Cooling Inflation Brings Market Gains
November 14, 2022