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At last, Yanks got a good, good inflation number

Peter Switzer
14 December 2022

Just when it looked like Wall Street and the US statistician were set to ‘scrooge’ Christmas with a “bah humbug” inflation reading, the opposite has happened. Instead of a disappointing November CPI, which the stock market has been stressing about since last week because of some strong US economic data, along comes a better-than-expected inflation result.

As the Volunteer song goes, it looked like a good, good day was there for stocks on this inflation data drop and the Dow futures spiked over 800 points on the news and the actual Dow went for a big spike higher, over 400 points but it then sold off! That said, while the Dow had its doubts about the implications of the number, the Nasdaq was far more positive about the 0.1% rise in the CPI for November, which took the annual inflation reading to 7.1% from 7.7% the month before.

The tech-heavy Nasdaq, which hates rising interest rates, was up 0.89% while the S&P 500 was 0.56% higher, as it too is influenced by tech stocks.

Normal people might have expected a bigger and more positive response to this good inflation number but the Wall Street worry warts are now focused on what the Federal Reserve will make of the number.

This CNBC commentator summed up the muted market reaction to this better-than-expected inflation result.

“While the inputs of inflation coming into that Fed meeting are modestly better, we still don’t know for sure if the Fed’s going to raise by 50 basis points, if they’re going to raise their terminal rate. So, we have quickly shifted gears into a mode of ‘wait and see’ for the Fed meeting tomorrow,” said Art Hogan, chief market strategist at B. Riley Wealth.

The interest rate committee of the US central bank is meeting now and tomorrow will probably raise the official interest rate by 0.5% and then make comments that could hurt or help stocks.

Undoubtedly, reference will be made on the success of lowering goods-driven inflation but services/wages inflation still is at 7.3% and that has put a lid on stock market enthusiasm.

That will be the big watch for 2023 but I think the impact of these interest rate rises are pushing the US and our economy in the right direction in lowering inflation and that will eventually help stocks recover next year.

I often use my Rachel Hunter line from the Pantene TV commercial of many years ago to describe improved economic trends heading towards a desired goal, such as normal inflation and a rallying stock market, and it goes like this: “It won’t happen overnight but it will happen.”

So, what’s the impact of this better US inflation number on us?

1. It’s good for stocks and we could see the mother of all Santa Claus rallies coming into Christmas, which will be good for our super funds.

2. It could make the RBA less worried about slowing up interest rate rises as there will be less pressure from the US Fed.

3. There could be less worries about too many interest rate rises, which should slow up house price falls.

4. Our dollar will rise as the greenback has been powered along by its big 0.75% rate rises. It’s up to 68.5 US cents this morning.

5. There could be more recession fears in the US, which could curb the enthusiasm for stocks but the likelihood of less rate rises will be good for tech and growth stocks, as the Nasdaq showed overnight.

6. Business and consumer confidence will be helped if the inflation is on the slide here.

7. It should help growth in 2023 be higher than is currently being predicted by the RBA and Treasury.

We might not get a good, good day on this good inflation result but we’re heading in the right direction for stocks in 2023. I can’t ever be certain about when a stock market will rise or fall but the trend is your friend until it bends and this inflation number is good for the stock market trend, which we’ve seen for the past six months and the past two months, in particular, as you can see below.

S&P/ASX 200

That’s a 7.74% rise since June 14!

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