Market Pulse

In focus

Hungry for good news last week, the market devoured inflation data from October that came in lower than expected, leading U.S. equities to jump over 5% on Thursday and sending the 10-year U.S. Treasury yield well below 4%. While U.S. elections took place earlier in the week, investors seemed to be much more concerned with the inflation report. This lines up with our work that shows that elections matter, but other factors tend to matter more for markets and the economy.

Data from October’s Consumer Price Index (CPI) report showed that inflation rose less than expected. Core CPI, which excludes the volatile food and energy components, rose 0.3%, cooler than the estimated 0.5%. On a year-over-year basis core CPI dropped from 6.6% to 6.3%. Additionally, several Federal Reserve (Fed) officials provided comments that we’re perceived as dovish – giving the bulls a set up that they wanted. However, inflation is still well above the Fed’s target.

The rally, which was the biggest seen so far this year for the S&P 500, sent the index above 3,900 and favored some of the sectors which have been the most battered this year. For example, the communications services sector, which is down about 37% this year and is the worst-performing sector year to date, clawed back over 9% last week.

A look back

• Global equity markets rallied across the board last week with the U.S., emerging, and international developed markets each up more than 5%.
• The 2-/10-year yield curve remained inverted last week as the 10-year U.S. Treasury yield fell back below 4%.
• October CPI showed softness with both monthly and yearly figures coming in below expectations, inclusive of food and energy.

A look ahead

• Geopolitics will be front and center this week as the G20 summit convenes in Bali and President Biden is expected to speak with Chinese President Xi in person.
• The Philadelphia Fed President takes the stage on Tuesday. Any rhetoric about the Fed’s path will likely gather investor interest.
• Economic releases: Producer Price Index, Retail Sales, Building Permits, Existing Home Sales, and Housing Starts.

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