October Inflation Report Sparks Market Rally on Hopes of Brighter Days to Come
October's better-than-expected CPI report sparked a major rally on Wall Street as investors bet big on the likely end of Fed rate hikes.
The release of the October 2023 Consumer Price Index (CPI) report came in better than expected, with renewed investor optimism sparking a major stock market rally as investors bet heavily on the likely end of future Fed rate hikes.
The CPI report showed headline inflation was unchanged in October compared to the previous month and up 3.2% over last year, coming in below the 0.1% and 3.3% projections by analysts. Experts attribute the better-than-expected headline inflation number to declining energy prices, which dropped 2.5% in October, despite food prices increasing slightly by 0.3%.
Core inflation for October, which excludes volatile energy and food prices, increased 0.2% compared to last month and 4% year-over-year. Both figures came in below the analyst forecasts of 0.3% and 4.1%. The year-over-year increase in core inflation in October 2023 was the lowest since September 2021.
While inflation remains above the Federal Reserve’s 2% target, core inflation has declined every month since April 2023, which falls in line perfectly with previous comments by Fed officials that they were looking to see a string of consecutive declines in core.
Following the release of the October CPI data, all three major stock market indices rose sharply on Tuesday, as investors bet big on the end of Fed rate hikes.
The NASDAQ Composite (IXIC) closed up 2.37% on Tuesday, while the S&P 500 (SPX) and Dow Jones Industrial Average (DJI) closed up 1.91% and 1.43%, respectively.
Sit Fixed Income Advisors portfolio manager Bryce Doty had this to say about the positive October CPI numbers:
“The Fed looks smart for effectively ending its tightening cycle as inflation continues to slow. Yields are down significantly as the last of investors not convinced the Fed is done are likely throwing in the towel.”
Paul McCulley, adjunct professor at Georgetown University and former chief economist at Pimco, also weighed in on the news during an interview with CNBC’s Squawk on the Street, commenting:
“This is a game changer. We’re having a day of rational exuberance because the data clearly show what we’ve been waiting for for a long time, which is a crack in the shelter component.”
Here’s to brighter days to come.
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