November 11, 2022
Good morning,
There was little about yesterday’s price action in stocks, bonds and currency markets that wasn’t extraordinary. What was not extraordinary was the miss in the CPI number – the fuse that lit up markets to begin with. The direction of yesterday’s price moves was probably all about the lower-than-expected CPI number. The magnitude of the price moves probably had more to do with the mechanics of markets and the levels of liquidity inside them. After all, yesterday’s CPI miss was the same as July’s CPI miss (released Aug 10th) and the S&P 500 was up 2% that day. A far cry from the +5.6% yesterday.
Recall that our current rally began in mid-October and lifted the S&P 500 Index +12% by the end of the month. As November began I talked about 4 events over two weeks that I labeled the rally’s testing period. Could the rally survive, in rapid succession, a Fed meeting, jobs data, election results and a CPI report without cracking? Following yesterday’s action, you have to give the rally a passing grade … but not an “A.” From the end of October, through yesterday, the rally has added +2% to the S&P 500 Index.
Passing the test suggests that our rally will likely take us into year end. However, it has not yet shown enough strength to suggest it is the kind of rally that ends bear markets. One day, even extraordinary ones, does not make a market. Have a nice weekend.
Be well,
Mike