The CPI Triggered One of The Best Days In Market History
Channel: Payne Capital
Date: 12/11/2022

This is Bob Payne, Chief Investment Strategist with Payne Capital Management with this week's Market Update. This week on the Street of Dreams, we had a Dow Wow when on Thursday the Dow climbed 1,201 points for one of the best days in market history. For the week, the Dow gained 4.2%. The S&P 500 was up 5.9%. And the tech-heavy NASDAQ surged 8.1%. Now, the Dow finished the week at 33,747. Hard to believe that one month ago today, the Dow is trading at 29,000. That's a whopping 4,700-point move in just four weeks. A 16% gain.

Now, this week's rally was triggered by a positive inflation report. The CPI, the Consumer Price Index, rose at a lower-than-expected rate of 7.7% from the previous year, spurring bets that the Federal Reserve would soon slow down the pace of interest rate hikes meant to cool inflation by reducing economic demand. The expectation is that the Fed will hike the Fed funds rate by 50 basis points or half of 1% next month after four consecutive 75 basis point increases. Some economists believe they may pursue a lower terminal rate as well.

Now, the rally wasn't only confined to the stock market. Bond markets rose as bond yields fell. The two-year Treasury yield, a barometer for expectations about the federal funds rate, fell to 4.3%, down from a multi-year peak at just over 4.7% hit earlier this month. The only loser for the week was the U.S. dollar suffered its worst one-day decline in more than 13 years. That's bad news for overseas travelers, but good news for both domestic and international stock markets. A falling dollar reduces the purchasing power of Americans traveling abroad, but it benefits multinational companies like Apple and McDonald's that derive a lot of their revenue from abroad and whose profits increase when they convert those sales in international currencies back into the good old dollar. A weak dollar is also good news for investors betting on international markets and was one of the reasons why the international markets rose over 7% on the week. It increases the value of dividends earned in foreign currencies as they're converted back into U.S. dollars. Now, adding to the exuberance in the international markets was China's decision to relax some COVID-19 restrictions. A sign the global economy has a chance to run more smoothly.

So the big question on investors' minds is, will inflation continue to slow from here? Is there enough evidence to convince Jerome Powell to pivot from his hawkish perch at the Federal Reserve? Of course, no one can say with certainty, but many don't expect inflation to stay super hot. There are many signs it is likely to continue to slow, including falling commodity and home prices. Now, Wharton professor Jeremy Siegel said this week, inflation is basically over. Siegel's confidence stems from the fact that when you exclude the Fed's use of lagging housing data, inflation would actually be negative. He believes that the Fed and Chairman Jerome Powell are going to change their tune when they get to the real-world data in their December meeting. I hope he's right, but there's no way to know. And truth be told, it really doesn't matter.

Here's what I do know. If we have just three more Dow Wow days like Thursday, the Dow Jones Industrial Average will not only reach the old record highs of this past January but will actually exceed them and set a new all-time high for the market. We're talking about just three days proof once again that when it comes to investing your hard-earned money, wealth creation is not about timing in the markets. It's all about time in the markets.

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