Analysts said that some data points buried in the depths of the inflation report may offer hope that inflation is on its way to a peak and then declines, although current conditions look bleak. Others said that technical reasons could also help support the markets, as some investors closed their bets on dips after the inflation report.
“Hopefully it’s because people have dived into the details of the inflation report and noticed some signs that we might get inflation relief by the end of the year,” said Brian Jacobsen, senior investment analyst at Allspring Global Investments.
Core inflation came in higher than expected. attributed to him:Bloomberg
“Markets have bounced back from the brink, so to speak, and they are a little more optimistic,” said Christina Huber, chief global markets strategist at Invesco.
Most investors came into the morning already expecting the Fed to raise its key overnight interest rate by three-quarters of a percentage point next month, which would be the fourth consecutive increase of three times the usual size.
But disappointing inflation data on Thursday made some investors anticipate a fifth such increase in December, dashing hopes that the Federal Reserve may start turning lower soon. Bets have increased on the Federal Reserve to pull the overnight interest rate above 5 per cent by early next year. The federal funds rate started this year at almost zero.
Higher rates make it more expensive to buy a house, a car, or anything else bought on credit, and the hope is that it will slow the economy and job market enough to reduce inflation. But higher rates take a long time to take full effect, and the Fed risks causing a recession if it winds up too far.
As the day progressed, and investors had more time to delve into the details of the inflation report, analysts said they may have seen some glimmers of hope. Although so-called “core” inflation accelerated in the past month, overall inflation including food and energy prices has slowed slightly.
The overall consumer price index, also known as the CPI, was 8.2 percent higher in September from a year earlier, versus 8.3 percent for inflation in August.
“If you at least start to see headline CPI great, there is hope that core CPI will follow,” Huber said. “There’s definitely this thought process coming.”
Quincy Crosby, chief global strategist at LPL Financial, said, “There is a view that because the CPI is a lagging indicator, higher rates will further slow the economy and inflation will recede at a faster rate.”
Treasury yields pulled back from their initial early morning highs, slightly easing pressure on stocks.
The yield on 10-year Treasuries, which helps determine rates for mortgages and many other loans, fell to 3.89 percent from 3.90 percent late Wednesday. Earlier in the day, it crossed 4 percent.
The two-year yield, which moves more based on the Fed’s business expectations, rose to 4.39 percent from 4.29 percent. It exceeded 4.50 per cent earlier in the morning.
Higher yields add to the pressure on the economy not only by making loans more expensive and slowing growth. It also drives down the price of stocks, cryptocurrencies, and almost every other investment because it means that bonds pay more interest, taking away some dollars from other investments.
Investments that are seen as the most risky and expensive or that force investors to wait longer for significant growth have been hardest hit by higher interest rates this year.
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The inflation report hit Wall Street as companies prepare to report the amount of profits they made over the summer.
If they can report significant growth, that will give some significant support to stock prices even with concern about stock prices going higher for a longer period, upsetting the markets. But analysts highlighted the pressures caused by high inflation, high interest rates and the high value of the US dollar against other currencies, which are reducing the value of dollar sales abroad.
“Earning season may not be bad, but being strong enough to turn the tide will be tough,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
Domino’s Pizza jumped 9.8 percent to the biggest gainer in the S&P 500 after its earnings report. Its fourth-quarter profit was lower than analysts’ expectations, but it generated more revenue than expected.
AP
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Originally published at Melbourne News Vine
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