A cooling inflation number ignited a powerful rally on Thursday, sending stocks to strong gains for the week.
The Dow Jones Industrial Average gained 4.15%, while the Standard & Poor’s 500 added 5.90%. 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
Footnotes and Sources
1. The Wall Street Journal, November 11, 2022
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
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Weekly Market Insights: Cooling Inflation Brings Market Gains
November 17, 2022