Investors remain focused on inflation and interest rates this holiday season as the two highly anticipated announcements of the week: CPI and the Fed decision sent markets in opposite directions, higher early in the week and selling off by the end.
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When the Fed is concerned about inflation, good economic news is bad news for investors. Stocks gave up most of their previous two weeks of gains, as strong economic data dampened hopes that the Federal Reserve may be able to stop raising rates to curb inflation.
The market rallied last week, buoyed by the possibility that the pace of Fed rate increases may be slowing. Fed Chair Jerome Powell signaled smaller rate hikes going forward, but for a longer duration.
Markets rallied in a shortened Thanksgiving trading week, with the S&P 500 Index finishing above the 4000 level for the first time in two months. Positive earnings reports in retail and tech and signs that the Fed is going to slow the pace of rate increases, helped market sentiment.
Stocks gave up some ground this week after last week's inflation-data-infused rally. Growth stocks lagged value shares. Energy shares sold off on peak inventory levels for oil and gas in Europe.
What a difference a good CPI print can make! Markets celebrated Thursday morning's release of the Consumer Price Index data for October. Headline CPI rose 0.4% in October, which was less than consensus expectations for a 0.6% increase, which plots CPI at 7.7% year-over-year.
Markets initially rallied on Wednesday after the Fed statement indicated it might slow down its pace of rate increases, only to reverse after some hawkish comments in the press conference. As expected, the committee raised rates by 75 bps.
Looking back at last holiday season, most of the globe was in the midst of a pandemic surge, which, along with continued supply chain issues, helped place a big lump of coal in the stocking of in-person shopping.
Last week was a tale of two markets, with gains for the DJIA putting it on track for its best October ever with its fourth positive week in a row, while mega-cap tech names took a beating reminiscent of the dot-com bust of the early 2000s.
Stocks regained some upward momentum last week, as investors reacted positively to earnings reports and hints that the Fed might moderate its pace of interest rate increases. The S&P 500 experienced its largest weekly gain in four months, while the DJIA posted its third consecutive week of gains.