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Weekly Market Update for November 11, 2022

by Jim Ulland

The Caribou Coffee company slogan is “Life’s short, stay awake for it.” This week, three major events kept everyone awake: the election, the October CPI data, and China.

The election is over, but no one knows how it came out. In the House, either the Republicans will have ten more votes than the Democrats or vice versa. The Senate majority will be decided by the races in Arizona and Nevada or by the runoff election in Georgia on December 6. Gridlock in DC is a “safe space” for the market. Gridlock means changes happen more slowly and most often require the agreement of both parties. The market needs a break from uncertainty and from proposals far outside the mainstream. We could use a lot more civility too. The day after the election, the market went down 2%.

Before the market opened on Thursday, the Consumer Price Index for October was announced. It showed a rise of 7.7%, markedly below what was expected. The market viewed this decline in inflation as the beginning of a multi-month trend. It was hoped that each subsequent month, the CPI report would show a further decline in the rate of inflation. This signal is what the market was waiting for; the S&P 500 rose 5.5% and the NASDAQ rose 7.35% on Thursday, followed by more celebration on Friday. Fixed income also spiked higher by approximately 4%. The coast is not all clear, because future CPI figures are unknown. However, other factors point to a slowing in the rate of future inflation. For instance, October pending home sales were down 35%, layoffs are in the headlines (Meta/Facebook laid off 11,000), consumer confidence dropped, new rents were lower, used car prices fell, and wage growth was modest. Abroad, the UK economy turned negative in Q3.

China, as the second largest economy in the world, made its own news. The Covid lockdowns were eased and the BioNtech vaccine was approved for foreigners, implying that approval for the general population may soon follow. Oil prices surged, anticipating a return of energy demand from China. That said, the reopening in China is expected to be slow.

The psychology of the market has improved. Headwinds will remain in announcements of reduced corporate earnings forecasts and more rate increase chatter from the Fed. Although a rate increase of 0.50% in December is likely, the Fed could be near the end of rate hikes. There will be a lot of bad economic news between the Fed’s December meeting and the next one in February.

For the week, the 10-yr Treasury was down by 35bps to 3.82%. Monday the S&P 500 was +0.96%, Tuesday +0.56%, Wednesday -2.08%, Thursday +5.54% and Friday +0.93%. For the week, the CPI managed to restore value for investors, who hope the trend will continue. The weekly S&P 500 was up +5.90% and +8.09% for the NASDAQ.

Next week, we should know which party will have the majority in the House. The Senate majority may have to wait until December 6. Other market-moving news will include the EU’s CPI report on Wednesday, November 16. Finally, we all deserve this break from the deluge of election ads. Enjoy.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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