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“You can never cross the ocean unless you have the courage to lose sight of the shore.” – Christopher Columbus
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Inflation data and the upcoming earnings season have been the short-term focus of investors lately, but from a long-term perspective, today markets the one-year anniversary of the bear market low from last year. While the S&P 500 remains below its highs from late July, it is still up over 20% from the closing low a year ago today. Happy Anniversary!
Yesterday’s data was the warmup, but today’s CPI report for the month of September is the main event in a market that has been hypersensitive to inflation data for several months now. As shown in the chart below, the S&P 500’s trailing 12-month average daily change on CPI days has been above 1% since August 2022 and peaked at just under 2% this January. The only other time since 2000, that the S&P 500 was more volatile on CPI days was at the height of the financial crisis from late 2008 and through 2009.
Over the last two months, the S&P 500’s change on CPI days has been much more toned down with a gain of just 0.03% following the July report in August and a gain of 0.12% after the August report last month. Those subdued readings have taken the 12-month average down to 1.11%, and unless the S&P 500 moves up or down 1.25% today, the 12-month average will fall back below 1%.
The September CPI report just hit the tape and the results came in generally higher than expected. Headline CPI rose 0.4% m/m versus forecasts for an increase of 0.3% while core CPI was right in line with forecasts. As you might expect, equity futures have given much of their earlier gains while rates are higher. Obviously, these higher-than-expected readings in yesterday’s PPI and today’s CPI show that the road to lower inflation is a windy one. Jobless claims were also just released, and initial claims were pretty much right in line with forecasts while continuing claims rose more than expected.
Similar to the charts we showed yesterday of the PPI relative to its historical average, below we show how current levels of headline and core CPI on a year/year basis stack up relative to history. At the headline level, the current level of 3.7% is below its 50-year average reading of 4.0% but still above its 25 and 10-year averages of 2.5% and 2.7%, respectively. On a core basis, the picture is even worse with the current level of 4.1% above its 50 (4.0%), 25 (2.5%), and 10 (2.7%) year averages.
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