Mid-Week Market Minute 11.15.23

Stocks Continue Rally After Positive Inflation Reports

Stocks around the globe posted another impressive rally in early trading this week as markets digested a better-than-expected CPI inflation print on Tuesday. The S&P 500 climbed nearly 2%, while the Russell 2000 (small cap index) jumped by more than 5%. On the international front, the MSCI ACWI ex US index rallied more than 2%, while the emerging markets index tacked on about 1%. Bonds rallied on the report as well, with the Bloomberg US Aggregate Index gaining about 1.2% in total return, reflecting the markets expectations the Fed is now finished hiking rates.

On the inflation front, the Consumer Price Index (CPI) for October showed headline inflation was unchanged during the month, benefiting largely from lower gasoline prices. More importantly, core inflation increased by less than expected, coming it at 0.2% for the month against expectations for a 0.3% increase. All told, headline and core inflation were higher by 3.2% and 4.0%, respectively. Separately, Wednesday’s report on wholesale prices confirmed the disinflationary trends as the Producer Price Index (PPI) fell 0.5% in October against expectations for a 0.1% increase. Overall, we view this week’s inflation numbers as a welcomed sign for investors and the Federal Reserve. Still, we believe the markets may be overly optimistic about the possibility of rate cuts as early as next spring given the relatively strong economic backdrop.

In Washington, the House of Representatives passed a temporary spending bill to avoid a government shutdown, which would extend government funding through mid-January. This comes ahead of the Friday deadline and helped bolster investor sentiment this week. Assuming the legislation makes its way through the Senate, the stopgap spending bill would extend government funding at current levels into 2024, giving lawmakers more time to craft the detailed spending bills that cover everything from military to scientific research (Reuters).

Source: GSAM, CNBC, JPMorgan

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