Friday's Market Minute: Relief Bounce Gives the Bulls Some Much Needed Respite

Yesterday’s large gain in the broader market managed to bring the S&P 500 back to support marked by the June swing low. Because there is some peaking in inflation, investors felt comfortable buying in at these levels. The overall Consumer Price Index increased 8.2% in September year-over-year, down from 8.3% in August and 9.1% in June.

The CPI report describes stickier, broader-based inflation that will take more time and more economic weakness to return to the Fed’s target. However, in anticipation of a market that may not be fighting the Fed much longer, bulls received a much-needed respite from the most recent aggressive selling. Despite a hot inflation report, U.S. equities turned positive early in the trading day, which at the very least implies core inflation may soon start trending lower.

Based on slowing job growth and moderating inflation data, it is apparent that monetary policy is quickly becoming restrictive and that will undoubtedly send inflation and GDP growth lower. Reading the bond market, short-term Treasury yields continue to rise as Fed tightening will remain aggressive, with a 75-bp raise expected in November. Stable long-term yields reflect that recession risks are rising.

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