U.S. stocks and bonds staged a strong rally on Tuesday morning following the release of new consumer inflation numbers by the Bureau of Labor Statistics showing that price hikes across the economy are easing.
Consumer Price Index (CPI) – a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services – rose 0.1% in November.
The November CPI increase is much smaller than the 0.4% increase in October and well below market expectations of 0.5%, thanks to a drop in energy prices.
Core CPI, which excludes food and energy, rose 0.2% in November, down from 0.3 in October and slightly below market expectations of 0.4%.
For the year, CPI is up 7.1%, down from 7.7% a month earlier.
The CPI report is in contrast to the Producer Price Index (PPI) report released last week. It showed that November producer prices increased at an annual rate of 7.4%, ahead of market expectations.
Overall, November inflation is cooling off faster or slower than markets have expected, depending on which numbers one looks at, but it remains elevated.
Wall Street doesn’t seem to care about that. Instead, traders and investors raced to buy risky assets that have declined in value because of higher inflation and interest rates.
At 11 a.m. ET, major equity futures indexes were trading higher, while U.S. Treasury bond yields and the dollar were trading lower.
“For the second consecutive month, inflation came in below expectations,” said Phillip Neuhart, director of the market and economic research for First Citizens Bank Wealth Management, cheering the November CPI report. “This is good news for markets and the Federal Reserve. Should this downtrend persist, it allows the Fed to slow the pace of interest rate hikes and eventually pause in the first half of next year.”
Anthony Denier, CEO of Webull, a commission-free trading platform, was also enthusiastic about the November CPI report.
“The numbers show inflation backing off, which is a good thing. The Fed has done much heavy lifting, and inflation now looks to be headed on the right trajectory, unless there are some unanticipated events,” Denier said.
Denier notices that inflation is a lagging indicator, but it looks to decrease and decelerate.
“We should expect it to fall faster next year after we cross the first anniversary of the Ukraine War,” he said.
Wes Gottesman, market advisor at TradeZing, a live-streaming, Web3 platform designed for millennial and Gen Z traders, cheered the rally in equity and bond markets but was skeptical about the Fed’s reaction to the new CPI numbers.
“Although the CPI figures show an improved economic status, the Fed will likely raise the interest rate another 50 basis points,” Gottesman said.
Gottesman is bullish on equities. “With inflation heading in the favorable direction, we expect to see much green in the stock market for the next several days,” he added.
Mina Tadrus, CEO of Tadrus Capital, is skeptical about the November CPI numbers, pointing to the continued rise in rental and food prices, two significant contributors to the index.
“Rental prices continued to rise rapidly, indicating that inflation remains persistent in certain areas,” Tadrus said. “President Biden is likely pleased with the cooling of inflation. The decrease in energy prices contributed to the overall decline in inflation. The energy index fell 1.6% in November, partially due to a 2% drop in gasoline prices. Despite this, food prices increased by 0.5% and were 10.6% higher than the previous year.”