Stocks and Bonds Rise on Lower Inflation Report

The Dow (+1.9%), NASDAQ (+2.4%), and S&P 500 (+2.3%) rose sharply for the week, as each of the sectors increased in a broad-based rally.  In similar fashion, taxable bonds and tax-free municipal bonds also gained about 1.3% for the week.  Meanwhile, the 10-year Treasury yield fell 0.17% to end the week at 4.44%.  That bodes well for mortgage rates!  The dollar also fell 2% last week against a basket of global currencies, and that provided tailwinds to international stocks.  Thus, just about everything was positive last week for investors.

Oddly enough, last week was marked by good news is good news, and bad news is also good news, because they each pointed to hopes that the Fed will stop their interest rate hikes.  Specifically, the most widely accepted measure of inflation, the Consumer Price Index (CPI), was unchanged over the prior month and down to 3.2% over the prior year.  The Producer Price Index (PPI) was actually down 0.6% over the prior month, and up only 1.2% over the prior year.  Retail sales also fell 0.1% in October, down from a 0.9% gain in September.  Industrial production fell 0.6% in October, compared to a rise of 0.3% in September.

All the data noted above is pointing to a slowing economy, which supports the Fed to stop its rate hiking campaign.  That has been met very favorably by investors.  However, the same data should also present itself as a concern that the rate hikes over the past 1.5 years are beginning to show signs in weakening the economy.  Let’s hope this results in a “soft landing”, and not a sharp recession in 2024.

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