Stocks Soared Yesterday, All Eyes On This Morning's CPI Inflation Report
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Stocks closed sharply higher yesterday to start the week on an exceptionally strong note. The small-cap Russell 2000 and the mid-cap S&P 400 were the top gainers with 3.15% and 3.13% respectively. The tech-heavy Nasdaq and S&P 500 were up 2.74% and 2.35%, followed by the Dow with 2.15%.
That's on top of Friday's strong gains as well.
Most of the indexes are above where they were on the day of the midterms. Only the S&P and Nasdaq are below it, but not by much. What a difference a couple of days can make.
Helping fuel the rally was a sharp drop in oil prices with crude falling nearly -6% after President Trump indicated that additional U.S. attacks on Iran were unlikely as negotiations continued.
Tech stocks were among Monday's biggest winners with semiconductor stocks staging a strong rebound following last week's selloff.
But NVIDIA was a notable exception, falling -4.15% as CEO Jensen Huang comes under board investigation over his affair with a reported to be a Chinese spy. NVIDIA's board said it has "no reason to believe" that national security or NVIDIA secrets were compromised, but is reviewing the matter anyway.
In other news, not much in the way of economic reports out yesterday, other than Wholesale Inventories, which rose 0.7% m/m vs. last month's 0.6% pace and views for the same.
Today we'll get the NFIB Small Business Optimism Index, and the Consumer Price Index (CPI ? retail) inflation report.
Economists are expecting inflation to moderate from September's elevated levels, helped in part by lower gasoline prices. For reference, last month's headline rate was up 0.6% m/m, with the y/y rate at 3.7%. The core rate (ex-food & energy) was up 0.3% m/m, with the y/y rate at 2.6%.
The report takes on added importance following Friday's stronger-than-expected employment numbers, which showed the economy added 165,000 jobs in October, well above the consensus estimate of 62,000. While a resilient labor market is good news for the economy, it also gives the Fed more room to keep interest rates elevated if inflation remains stubbornly high.
After today's CPI report, we'll get another look at inflation with Friday's Producer Price Index (PPI ? wholesale) inflation report.
FYI ? the Fed's next FOMC Announcement in on December 9th.
On the earnings front, investors will be watching results this week from companies including Cisco and Applied Materials, which could provide further insight into technology spending and demand for AI-related infrastructure.
And, of course, you have the seasonal tendencies and the cyclical tendencies that should help drive the market.
Seasonally, the fourth quarter is historically the best quarter of the year for stocks. Since 1950, the S&P has gone up 79% of the time, with an average gain of 4.1%. Yes, Q4 is off to a rough start. But nobody said it was without volatility.
And cyclically, regardless of politics, stocks typically rally after midterms. Since 1950, between election day and the end of the year, it's higher 68% of the time. And looking out over a 12-month period from midterms, the odds improve even more dramatically with the S&P up every time with an average gain of more than 15%.
So I'm expecting a strong end-of-year rally, and another double-digit gain next year.
See you tomorrow,

, Zacks Investment Research
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