Markets rocket higher as inflation appears to be easing

By coreyWeekly Update

Economy

  • U.S. equities stormed higher during the week as inflation appears to be easing. October inflation, as measured by the Consumer Price Index (CPI), came in at 7.7% year-over-year, considerably lower than economist expectations and one half of a percent lower than the previous month. Markets responded with a massive gain on Thursday, the day of the CPI data release, as the S&P 500 was up over 5% and the downtrodden Nasdaq index was up over 7%. It was an incredibly strong reaction to better-than-expected inflation numbers, which hopefully continue to improve from here.
  • The lower-than-expected increase in the CPI boosted investor optimism that the Fed’s monetary policy tightening may be starting to dampen inflation, which could convince the central bank to curtail interest-rate hikes going forward. The Fed has raised the federal funds rate by 3.75% to a range of 3.75%-4.00%. According to CME’s FedWatch Tool, there is an 85% probability that the Federal Open Market Committee will implement a 0.50% increase in the target federal funds rate at its meeting in December, which would break a streak of four consecutive 0.75% rate hikes since June.
  • The Department of Labor reported that initial unemployment claims increased by 7,000 to 225,000 during the week ending November 5. The four-week moving average of initial unemployment claims dipped by 250 to 218,750, and remained substantially lower than the 290,750 average for the same period in 2021. This indicates ongoing strength in the labor market, which could prompt the Fed to maintain its policy tightening for a while longer in an effort to curb inflation.

Stocks

  • U.S. equities were in positive territory. Information technology and telecommunications were the top performers, while utilities and health care lagged. Growth stocks led value stocks and large caps beat small caps.
  • Global equities closed higher for the week. Developed markets fared better than emerging markets.

Bonds

  • The 10-year Treasury bond yield decreased to 3.81% during the week.
  • Global bond markets were in positive territory this week.
  • Global corporate bonds led, followed by global government bonds and high yield bonds.