Market Commentary — November 14, 2022
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. That is the slowest increase since January, suggesting that Fed rate hikes are finally having an impact.
Even more encouraging was the Core CPI number (ex-food and energy) which fell to 6.3%. Prices for used cars and trucks fell by 2.4% in October, while the cost of apparel and medical services also pulled back. But the cost of shelter continued to keep inflation elevated, rising 0.8% in October, the biggest increase in over 32 years. Also heartening is that four Fed officials voiced that they thought the pace of rate increases should slow and perhaps stop at a lower terminal rate.
The stock market responded by recording its best week since June and its largest daily gain since April 2020. Growth stocks and technology names rallied the most, benefiting from the prospect of falling yields, which increases the perceived value of future profits. Many growth and tech names were up double-digits on Thursday.
US Treasury yields fell sharply on the week, ending at 3.81% down from 4.1% last week. It should be noted that the bond market was closed on Friday in observance of Veteran’s Day.
On Friday, the University of Michigan’s November consumer sentiment reading fell unexpectedly to its lowest level since July, suggesting that consumers are feeling the cloud of inflation and rate hikes.
Also weighing on market uncertainty last week were the Midterm Elections, which saw a red wave of Republican victories fail to materialize.
And of course, the collapse of the FTX crypto exchange and the fall from grace of crypto guru Sam Bankman-Fried (now Sam Bankman-Fraud), sent crypto assets tumbling.
You can read my comments here on the potential impact on Bitcoin ETFs going forward.
In other ETF news, ARKK surged 14% on Thursday, posting its best day ever. ProShares Short Bitcoin Strategy (BITI) also had a big week. Not sure about the timing, but Mike Novogratz’s Galaxy Digital is teaming up with Itaú Asset Management to launch a physically-backed bitcoin ETF in Brazil, which listed on Thursday.
After last week, we expect to see more upward market momentum as investors once again price in the potential of a Fed pivot – this time supported by data. Signs of a softening of China’s Zero-Covid policy and the potential for a peaceful resolution to the Russia-Ukraine situation are also boosting investor sentiment and setting up a nice Santa Claus rally heading into the end of the year.
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