What a difference a day makes! Twenty-four hours ago, we were lamenting the collapse of the crypto exchange FTX deal — that which sent the company’s CEO’s wealth down a breathtaking 94% in one day (to a mere peasant-like $990 million — ha!) — and worried what the systemic tributaries of a potential crypto crash circulating through any number of investment portfolios would mean. But today, not only was the market somewhat reassured that FTX’s problems were mostly related to the company’s practices itself, but a key morsel of economic data went down sweet as sugar soon after.
This would be the Consumer Price Index (CPI) for October, which grabbed a 7-handle for the first time since the early months of the year. At a headline read of +7.7% year over year, it’s the lowest since January’s +7.5%. For a little context, June of this year brought us a frightening cycle high of +9.1% — the loftiest print in 41 years. Since then, we’ve come down 140 basis points (bps) with a clear trajectory lower from here. It’s the surest sign yet the Fed’s hawkish monetary policy is indeed paying off.
Markets rallied big on the news, and closed even higher: the Dow was up nearly 1200 points, +3.69% on the day — and it was the laggard. The S&P 500 gained +5.53% on the day, and the Nasdaq, which again had been taking it on the chin of late, rose an astounding 760 points — +7.35%. Even the small-cap Russell 2000 skyrocketed in the session: +6.11%. It’s the single-best trading day since the early months of the pandemic — which produced seismic shifts in the market almost routinely — and has brought both the Dow and S&P into positive territory for the month.
Not surprisingly, those sectors most hit by the trials and tribulations of our bear-market conditions were the biggest beneficiaries. Tech overall gained back +8.33% in today’s session, followed by Real Estate at +7.74%, Consumer Discretionary at +7.70% and Communications Services at +6.32%. Can you say pent-up demand? Today’s markets sure can.
We even saw immediate effects in the bond market, as a 2-year yield — which had crept over 5% for a short time in the past few days — sank down to +4.33% today, which was lower than the 10-year had been just a couple short sessions ago. For the 10-year itself, it’s now sitting at +3.83% — the first time it’s been back below 4% in quite some time. While we are now in the ninth month of an inverted yield curve, but instead of suggesting yield levels will be camping out above 5% for an indefinite time, today’s CPI report — all by itself — suggests this will come down.
So take this and look at our current Fed funds rate: between a range of +3.75-4.00%. We know the December meeting will bring forth another rate hike, but the odds of it being less than the expected 75 bps just went up palpably today. As we mentioned in this space this morning, there will be another CPI report released while the Fed is conducting its December meeting — would another half-point drop on headline CPI month over month be convincing enough for the Fed to lighten up from its jumbo tightening regimen?
Well, simple arithmetic would tend to bear this out: with a high range currently at 4%, another 75 bps hike would put us outside the current 2-year yield by more than 40 bps. Of course, plenty could happen between now and December 14th, when the next Fed statement is released. But today was a victory for those looking for a thoroughfare away from stubborn inflation, stagflation and any other “-flation” that’s been putting the whammy on the markets. As with the 70-degree temps in Chicago on a clear November day today, it was a real breath of fresh air.
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Markets Rally as Inflation Metrics Swoop Down
What a difference a day makes! Twenty-four hours ago, we were lamenting the collapse of the crypto exchange FTX deal — that which sent the company’s CEO’s wealth down a breathtaking 94% in one day (to a mere peasant-like $990 million — ha!) — and worried what the systemic tributaries of a potential crypto crash circulating through any number of investment portfolios would mean. But today, not only was the market somewhat reassured that FTX’s problems were mostly related to the company’s practices itself, but a key morsel of economic data went down sweet as sugar soon after.
This would be the Consumer Price Index (CPI) for October, which grabbed a 7-handle for the first time since the early months of the year. At a headline read of +7.7% year over year, it’s the lowest since January’s +7.5%. For a little context, June of this year brought us a frightening cycle high of +9.1% — the loftiest print in 41 years. Since then, we’ve come down 140 basis points (bps) with a clear trajectory lower from here. It’s the surest sign yet the Fed’s hawkish monetary policy is indeed paying off.
Markets rallied big on the news, and closed even higher: the Dow was up nearly 1200 points, +3.69% on the day — and it was the laggard. The S&P 500 gained +5.53% on the day, and the Nasdaq, which again had been taking it on the chin of late, rose an astounding 760 points — +7.35%. Even the small-cap Russell 2000 skyrocketed in the session: +6.11%. It’s the single-best trading day since the early months of the pandemic — which produced seismic shifts in the market almost routinely — and has brought both the Dow and S&P into positive territory for the month.
Not surprisingly, those sectors most hit by the trials and tribulations of our bear-market conditions were the biggest beneficiaries. Tech overall gained back +8.33% in today’s session, followed by Real Estate at +7.74%, Consumer Discretionary at +7.70% and Communications Services at +6.32%. Can you say pent-up demand? Today’s markets sure can.
We even saw immediate effects in the bond market, as a 2-year yield — which had crept over 5% for a short time in the past few days — sank down to +4.33% today, which was lower than the 10-year had been just a couple short sessions ago. For the 10-year itself, it’s now sitting at +3.83% — the first time it’s been back below 4% in quite some time. While we are now in the ninth month of an inverted yield curve, but instead of suggesting yield levels will be camping out above 5% for an indefinite time, today’s CPI report — all by itself — suggests this will come down.
So take this and look at our current Fed funds rate: between a range of +3.75-4.00%. We know the December meeting will bring forth another rate hike, but the odds of it being less than the expected 75 bps just went up palpably today. As we mentioned in this space this morning, there will be another CPI report released while the Fed is conducting its December meeting — would another half-point drop on headline CPI month over month be convincing enough for the Fed to lighten up from its jumbo tightening regimen?
Well, simple arithmetic would tend to bear this out: with a high range currently at 4%, another 75 bps hike would put us outside the current 2-year yield by more than 40 bps. Of course, plenty could happen between now and December 14th, when the next Fed statement is released. But today was a victory for those looking for a thoroughfare away from stubborn inflation, stagflation and any other “-flation” that’s been putting the whammy on the markets. As with the 70-degree temps in Chicago on a clear November day today, it was a real breath of fresh air.
Questions or comments about this article and/or its author? Click here>>