With the mid-term election mostly in the rearview mirror (a few House races have yet to be called and the Georgia Senate race is headed to a runoff next month) and the outcome of the vote being what we would consider a market-friendly divided Congress (even if the degree of division or gridlock isn’t as pronounced as many had expected), and with Q3 earnings season mostly in the rearview mirror (475 S&P 500 companies have reported to date) and the results coming in a bit better than expected (70% of companies that have reported topped Wall Street’s EPS expectations), we can turn our attention fully to the issue that, more than any other, has driven and should drive the direction of the stock market – and that is inflation.


On that front, we have gotten some very good news of late, with the October Producer Price Index and the October Consumer Price Index (CPI) both coming in lower than expected. In fact, as it concerns the CPI – which has arguably become the most watched data point on Wall Street – the October print of 7.7% was the first print below 8% since February of this year and marked the fourth consecutive month of year-on-year decline in the data point (on a year over year basis, the CPI peaked out at 9.06% in June; see chart).


While some inflation data points continue to be worrisome (wage inflation has proved stickier than many had hoped), others continue to point to a much more benign inflation environment as we move into year-end (commodity prices are down dramatically and the housing market is weakening rapidly), and, importantly, we are finally seeing an improvement in key headline inflation data, particularly the PPI and CPI. The US Federal Reserve holds its final meeting of the year on December 13th and 14th.


We think the Fed very much wants to downshift to a 50 bps interest rate hike at next month’s meeting. Between now and then, we will get a look at the November PPI and the November CPI (set to be released on December 9th and 13th, respectively). If those data points come in as expected or a bit lower than expected, we think the Fed can credibly moderate the degree of interest rate hikes, a development that should be most welcomed on Wall Street.


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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 2249-BCI-11/21/2022