US Stocks Diverge as Inflation Reaches 2021 Low, Fed’s Key Gauge Cools

Nov 30, 2023

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Inflation drops to 2021 low, impacting US stocks; Dow rises as Fed’s main inflation gauge shows cooling trend.

Inflation Eases, Offering Economic Relief

In October, the Personal Consumption Expenditures (PCE) Index showed inflation rising by 3%. This key inflation measure is closely watched by the Federal Reserve. It marked a decrease from September’s 3.4%. Additionally, the core PCE, which leaves out unstable items like food and energy, also dropped. Consequently, this trend indicates a slowdown in inflation. It matches with what experts had predicted. This also hints at a possible change in the economy’s direction.

Federal Reserve’s Inflation Gauge Indicates Shift

Inflation is slowing down, leading economists and market watchers to expect a pause in interest rate hikes. They believe the Federal Reserve might stop increasing rates. This belief gains support from market data and comments from Fed officials. Atlanta Fed President Raphael Bostic has noted a slowdown in inflation. In response, the market shows increasing hope for rate cuts soon. Tools like the CME FedWatch highlight this growing anticipation.

Although inflation is cooling, “it’s still somewhat elevated,” US Bank Wealth Management Rob Haworth says on PCE data. “We need a lot more data for the Fed to really feel comfortable before they consider cuts at the middle of next year.”

— Yahoo Finance (@YahooFinance)

Stock Market Reacts to Inflation News

The stock market has responded positively to these economic indicators. The reached a new high for 2023, gaining significantly and surpassing its previous high set in August. The S&P 500 has been stable, while the Nasdaq Composite saw a slight dip. The Dow’s impressive performance in November, gaining over 8% and ending a three-month losing streak, marks its best month since October 2022. This surge is partly attributed to cooling inflation data and strong earnings reports from major companies.

Tech Sector and Treasury Yield Dynamics

Technology stocks have been at the forefront of the market’s November rally, with notable gains in companies like Nvidia, Tesla, and Alphabet. However, some profit-taking activities were observed as the month concluded. The 10-year Treasury yield, a critical factor influencing market sentiment, has seen a significant drop this month, further encouraging equity investors.

Salesforce’s Earnings Boost

Contributing to the Dow’s rise, Salesforce reported better-than-expected earnings and revenue for its fiscal third quarter. The company’s cloud data business and its artificial intelligence product, Einstein GPT, played a significant role in this positive outcome, boosting investor confidence.

A Year of Recovery and Optimism

2023 is shaping up to be a year marked by significant economic shifts. The decrease in inflation rates, the Federal Reserve’s likely pause on interest rate hikes, and the stock market’s strong performance, especially in the technology sector, signal a year of recovery and optimism. The resilience of the economy and consumer sentiment, backed by technological advancements and robust corporate earnings, paint an encouraging picture for the remainder of the year.

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