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Some Resolve in the Market… and in Core CPI

Posted December 12, 2023 at 9:45 am
Patrick J. O’Hare

There is resolve in the stock market. We saw it again yesterday, as the major indices refused to give way to selling interest and added to their extraordinary gains since late October. They did so, too, without much support from the mega-cap stocks.

That resolve persisted this morning leading up to the 8:30 a.m. ET release of the November Consumer Price Index, but it will be tested as today’s session progresses given that the November Consumer Price Index wasn’t as quiescent as market participants might have been hoping.

The Consumer Price Index increased 0.1% month-over-month in November ( consensus 0.0%) while the core Consumer Price Index, which excludes food and energy, increased 0.3% month-over-month, as expected. That left the Consumer Price Index up 3.1% year-over-year, versus 3.2% in October, and the core Consumer Price Index up 4.0% year-over-year, unchanged from October.

The key takeaway from the report is the recognition that core CPI was “sticky,” largely because the shelter index (+0.4%) continues to be sticky. That should continue to give the Fed some pause about cutting rates anytime soon; and it may very well keep the Fed vocalizing the idea that it could possibly raise rates again if progress in fighting inflation stalls.

Treasuries have seen much, if not all, of their overnight gains unwound in the wake of the report, which was also accompanied by a release indicating real average hourly earnings increased 0.2% month-over-month and 0.8% from November 2022 to November 2023. That should be a good portent for consumer spending along with the ongoing strength of the labor market.

The Fed is apt to take notice of that consideration, too.

The 2-yr note yield, at 4.64% just before the release, is at 4.71% now, down two basis points from yesterday. The 10-yr note yield, at 4.16% just before the release, is at 4.21% now, down three basis points from yesterday. The Treasury market will be working later today to digest the results of a $21 billion 30-yr bond reopening at 1:00 p.m. ET.

The equity futures market has lost some of its pre-report steam, but it hasn’t come entirely unglued.

Currently, the S&P 500 futures are up one point and are trading roughly in-line with fair value, the Nasdaq 100 futures are up 21 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 70 points and are trading 0.2% above fair value.

Notwithstanding the pullback from earlier highs, there is still some resolve in those readings. That makes sense given the abiding recognition that the stock market has had a mostly one-track mind since late October that can give any seller some pause.

That thinking computes at the index level, but it isn’t constant below the index level as stocks like Oracle (ORCL) and Hasbro (HAS) are finding out. The former is down 9% following its mixed fiscal Q2 results and in-line fiscal Q3 guidance, whereas the latter is down 4.3% after acknowledging weaker toy sales have contributed to a decision to reduce its workforce by approximately 900 positions.

Originally Posted December 12, 2023 – Some resolve in the market… and in core CPI

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