Week of November 14, 2022

What a week for the stock market.  The Dow Jones Industrial Average was up 4.22%, the S&P 500 up 5.93, the NASDAQ outperforming all major indices up 8.10%. 

The Bureau of Labor Statistics fueled the rally when it released the October Consumer Price Index on Thursday. Headline CPI rose 0.4% for the month and 7.7% year over year.  This beat economist expectations of a 0.6% monthly increase and 7.9% annual rate.  This was the lowest annual increase since January.  Core CPI, which excludes food and energy, also beat expectations coming in at 0.3% monthly and 6.3% annually.

Bond yields fell sharply on Thursday on hopes the Fed may have a case to cool off on interest rate hikes. The yield on the 10-year treasury fell to 3.816 on Thursday.  So far this is one CPI print, and we will need to continue to see a decline in the rate at which inflation increases for the Federal Reserve to ease their monetary policy. Cleveland Fed chief Loretta Mester said, “I currently view the larger risks as coming from tightening too little” and San Francisco Fed chief Mary Daly agreed “One month does not a victory make.” Daly added that the focus is to “bring inflation reliably back to 2%... I don't see anything in the incoming information that has changed the look of that path.”

Election week provided some surprises with the Democrats holding a majority in the Senate.  Historically, the stock market does better with a split Congress.  Solita Marcelli, Chief Investment Officer at UBS Global Wealth Management stated, “Regardless of the final outcome, we are looking at a divided government, which increases the chance of gridlock and limits legislative action…This is typically good for markets as it reduces policy and regulatory risk.”

This week earnings will continue to be reported by major retailers, including Walmart, Target, Home Depot and Lowes.  On Tuesday, the Producer Price Index will report and on Wednesday, the Monthly Retail Sales Report will be released by the Commerce Department for October.  Economists are estimating an increase of 1%.