Markets surge on hopes that inflation may be peaking

Dow skyrocketed a staggering 938, advancers over decliners a whopping 10-1 & NAZ soared 598.  The MLP index recovered 4+ to the 225s & the REIT index jumped an impressive 24 to 386.  Junk bond funds saw heavy buying & Treasuries were heavily sold & yields plunged with the yield on the 10 year Treasury nosediving 31 BP to 3.84%.  Oil went back up to the 86s & gold jumped 37 to 1751as interest rates declined.

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Inflation cooled more than expected in Oct, but consumer prices remained near a multi-decade high, continuing to squeeze millions of US households and small businesses.  The Labor Dept said that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries & rents, rose 0.4% in Oct from the previous month & prices climbed 7.7% on an annual basis.  Those figures were both lower than the 8% headline figure & 0.5% monthly increase forecast by economists, a potentially reassuring sign for the Federal Reserve as it tries to tame runaway inflation with a series of aggressive interest rate hikes.  It marked the slowest annual inflation rate since Jan.  In another sign that suggests underlying inflationary pressures in the economy are starting to slow, core prices –  which strip out the more volatile measurements of food & energy – climbed 0.3% in Oct from the previous month, down from 0.6% in Sep.  From the same time last year, core prices jumped 6.3%.  Economists anticipated that core prices would climb 0.5% on a monthly basis & 6.3% from the previous year.  The report showed that used car prices tumbled last month, as did the cost of clothing, medical care & airline tickets.  Even with the slowdown in inflation, prices remain well above the Fed's 2% target.  Scorching-hot inflation has created severe financial pressures for most households, which are forced to pay more for everyday necessities like food & rent.  The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations.  Other price gains proved persistent & stubbornly high: The cost of groceries climbed 0.5%, putting the 12-month increase at 12.4%. Consumers paid more for items like cereal, bread, fresh fish & seafood, eggs & fresh vegetables including tomatoes & lettuce.  Shelter costs, which account for about 40% of the core inflation increase, rose 0.8% for the month & are up 6.9% over the past year, the fastest annual increase since 1982.  With food & shelter costs continuing to march higher, households are facing increased financial pressure.  Average hourly earnings actually declined 0.1% on an inflation-adjusted basis.  Compared to the previous year, earnings are down 2.8%, according to a separate BLS report.

Inflation holds grip on US economy as prices remain stubbornly high

The financial strain caused by high inflation has not stopped early holiday shoppers. In Oct alone, consumers collectively doled out $72.2B for online goods as early holiday deals kicked off, a 10.9% increase from the month prior, according to recent data from Adobe.  Even with rising costs, the spending in Oct was on par with the $72.4B consumers spent the same time a year ago.  "With over $72 billion spent online in October, e-commerce demand has shown itself to be durable and resilient, in spite of a challenging macroeconomic environment," Adobe Digital Insights senior director Taylor Schreiner said.  It's shown its resiliency thru much of the year.  From Jan-Oct, consumers spent a total of $727B, up 6.9% from the same period a year ago, which underscores how "the digital economy continues to expand," according to Adobe.  Last month, though, major retailers started to roll out holiday deals in order to ease the burden of holiday spending & shoppers happily took advantage.  For the entire holiday shopping season, which spans from Nov 1 - Dec 31, Adobe already projected that total online shopping sales would notch $204.5B online with electronics accounting for nearly $50B.

Holiday shoppers spend big in October as early deals kick in

Treasury yields declined across the board after the Oct consumer price index report, a key inflation measure, came in weaker than expected, signaling that price increases have possibly peaked.  The benchmark 10-year Treasury yield slumped 18 basis points to 3.946%, falling below the psychological 4% level.  The yield on the 2-year Treasury note fell 23 basis points to 4.395%.  Yields & prices have an inverted relationship.  The latest CPI report gave investors hope that inflation is now past its peak, lending confidence that the Federal Reserve's interest rate hikes are slowly working to tame high price increases & stock futures rallied on the news.  Markets also continued to watch developments around midterm elections, as it was still unclear which party will control the Senate & House of Representatives. The outcome is likely to affect decisions around monetary policy & spending.

Treasury yields tumble after October CPI comes in weaker than expected 

High inflation has not just evaporated.  While stock buyers are wildly optimistic today, the producer prices index is coming & that will give a signal for future prices increases.  Interest rates are high relative what many have become accustomed to & the looming recession remains "out there."  In the mean time, enjoy elevated levels for stocks.

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