Last week, the CPI reading moderated, which pushed stocks notably higher. The major stock indexes rose between 4 and 8%.
Bonds were also a benefactor of the CPI, with the 10-year Treasury yield falling back under 4%, to close the week with a yield of 3.81%.
Has inflation rolled over? Love to know the definitive answer! For now, I’m thinking inflation probably has peaked, however I’m not yet ready to suggest all is clear on the pricing front. Because we remain dependent on the international economy to produce so much of what we need, further supply issues are possible.
This week we’ll hear from a barrage of Federal Reserve representatives. The Fed has made it clear: they don’t want to repeat the mistakes of the 1970’s, when the Fed started and stopped raising rates several times, and so did inflation. I can only imagine Chairman Powell’s self-talk last Friday as the markets moved higher on the backs of slightly lower inflation….
On Tuesday, the Producer Price Index (PPI) will be released. It’ll be interesting to compare this PPI report to last weeks Consumer Price Index (CPI) report.
This week we’ll also hear the retail sales report, and earnings from Walmart, Kohls, Home Depot, Target and Macy’s. Thursday brings the report on Housing starts, and on Friday, existing home sales. All reports that have to do with the health and attitude of the consumer are of vital importance.
Election Impact
It looks as though the Democrats will hold the advantage in the Senate, even if the December 6th runoff goes to Herschel Walker. The Republicans, as of now, look to squeak out a majority in the House, however the race for the House is not over.
So, how have the markets performed after mid-term elections? Going back to 1962, the average gain on the S&P 500 from November 1st thru April 30th is 15.1%.
This includes Presidents Kennedy, Johnson, Nixon, Ford (Nixon), Cater, Reagan, G. Bush, Clinton, G.W. Bush, Obama and Trump. All of the 6-month periods were positive, as were the 12 month periods following each mid-term election.
How will we fare this time around? As history does not always repeat itself, it typically rhymes… and sometimes we’re surprised!
The shorter-term performance of the markets (next 12 months) will be determined by how well corporate earnings hold up, as the Fed continues raising and holding rates higher for longer.
Will the Fed takes its foot off of the brake in time to avoid a significant economic downturn? Will they guide the economy to a smooth landing, without a lot of collateral damage? The answer, of course…. time will tell!! Perhaps the most important question/answer I’ve mentioned since I began writing this blog in 2017.
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