Nasdaq 100 Pushes Higher as US Markets Prepare for October CPI Data.
Traders are waiting for the October CPI data to come out this week, which could make or break the Fed’s rate hikes. Analysts are expecting a 0.6% month-over-month increase and a 6.5% year-over-year increase. But if the numbers fall short, the dollar could fall and stock prices could rise. If the numbers rise above 7.9%, it could lead to a spike in rates.
The US Dollar weakened from recent highs, which has led to a rebound in risk assets. The 10-year Treasury yield fell to 4.7%, and has regained some of the losses from this year. However, the broader outlook is still quite bearish. The S&P 500 is set for its worst year since 2008, and the Nasdaq 100 is down nearly 30%. The next few weeks could prove very volatile.
The Dow Jones Industrial Average rose 149 points, while the S&P 500 added 28 points. The index is up 5.5% since the CPI report. It has also soared ahead of Netflix and Alphabet earnings. However, investors may be disappointed with the data, which was expected to show a slight increase. The S&P 500 is also ahead of Tesla results, which could put pressure on the EV manufacturer.
The Cleveland Federal Reserve is projecting a 6.6% year-over-year increase in the core CPI. This excludes volatile energy and food items, which should see a 0.5% month-over-month increase. This forecast is above Wall Street’s consensus. However, the data suggests that the Cleveland Fed has underestimated CPI in 16 of the past 19 months.
The S&P 500 has a bear flag, which means it may fall to the 9,350 level, and the NDX could drop to 9,350. It’s not clear if the gap between these two levels will be filled in the near future, but it could be. If the gap is filled, the front of the Treasury curve will be most vulnerable.
The October 2022 consumer price index declined from a near-term peak of 9.0% in June, and was down from 8.20% in September. The index rose to a peak of 17.6% in traditional CPI reporting in June 1947. The inflation numbers also reflect an explosion in Federal Government Deficit Spending. The core CPI rose 0.3% month-over-month, but it’s still below the 0.20% month-over-month increase that analysts expected.
The Fed has raised rates three times this year, and the next hike will come at the September meeting. The FOMC has said its focus will be on taming inflation, and it has already tightened its financial system. The US economy may be cooling down, however, and the ISM manufacturing PMI declined in October. This will add to the uncertainty for investors, which means the Fed may slow its rate hike pace.
Investors may worry that the next rate hike will be too aggressive, and that it will only push the economy into a recession. However, the likelihood of a 75-basis point rate hike is around 90%. This could give investors a little hope that the Fed will be able to keep inflation in check.
