Wall Street finally had reason to cheer after data from the U.S. Labour Department showed that inflation cooled in October to its slowest pace since the start of 2022. This sent stocks significantly higher and provided investors with some hope that the Federal Reserve will slow down its unprecedented steep interest-rate hikes.
The consumer price index was up 7.7% from a year earlier, the smallest increase since the start of the year and down from 8.2% in September and well below analyst calls for October inflation to rise eight percent.
On a monthly basis, prices were up 0.4% in October, matching September’s 0.4% climb. Still, that’s far better than economist projections of a 0.6% rise in October.
The core consumer price index, which excludes more volatile items like food and energy, provided additional optimism. It slowed more than expected to a 0.3% monthly rise from 0.6% the month before. On an annual basis, the core consumer price index reached a 6.3% annual rate, down from 6.6%.
Lower inflation is good news for both consumers and investors, but at 7.7%, it is still too high and remains a concern for the Federal Reserve. There is hope that the Federal Reserve will put the brakes on oversized rate hikes, but rate hikes are still in the cards.
It is widely expected that the U.S. Federal Reserve will raise its interest rates by a half-point when it meets next in December. That’s down from four consecutive rate hikes of 75 basis points, or 0.75%.
Has the Stock Market Bottomed?
While the October inflation report is promising, the U.S. central bank has said it needs to see months of cooling prices, not just one, before it starts to pivot back to lowering interest rates. Until that happens, smaller rate hikes, and ongoing volatility, are expected.
Analysts now believe U.S. stocks won’t bottom until the middle of 2023 and could fall as far as 3,200. That represents a decline of more than 18% from current levels. The additional losses on the S&P 500 are expected to be fuelled by weak corporate earnings and additional Federal Reserve rate hikes.
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U.S. and Canadian stocks soared higher after data showed that U.S. inflation is falling for the first time since the start of the year. This doesn’t mean inflation has been tackled, but it does show that the actions of the central banks are starting to work and that, perhaps, the worst is behind us. While investors need to brace for ongoing volatility, the trading professionals at Learn-To-Trade.com can show you how to profit no matter what.
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