Unraveling the Impact of Inflation on US Stocks
Inflation Gauge and Market Sentiment
The October print of the Fed's preferred inflation gauge, the Personal Consumption Expenditures index, was scheduled for release on Wednesday morning at 10 a.m. ET. Market focus was keenly on whether inflation had indeed stalled, as some officials had suggested. Economists anticipated that the annual "core" PCE, which excludes food and energy, would show a growth to 2.8% in October, up from the 2.7% seen in September. A print in line with these expectations was likely to have an impact on bets for a rate cut in December. Currently, traders estimated a roughly 34% chance of the Fed holding rates steady at that meeting, an increase from approximately 24% a month prior, according to the CME FedWatch Tool.This anticipation regarding the inflation data was having a significant influence on market sentiment. Investors were carefully observing these indicators to gauge the potential direction of interest rates and its subsequent effects on stock prices. The uncertainty surrounding inflation levels added an extra layer of complexity to the market dynamics, with traders and analysts closely monitoring every piece of economic data for clues.
As the release date approached, market participants were on edge, waiting to see how the inflation data would shape the future of the US stock market. The potential implications for interest rates and corporate earnings were top of mind, as they could have a profound impact on investment decisions and market valuations.
Corporate Earnings and Market Movements
On the corporate front, Dell (DELL) shares took a significant hit, sinking over 10% after quarterly revenue fell short due to weakening PC demand. Peer HP's (HPQ) stock also experienced a decline of 8% following its earnings report. These setbacks highlighted the challenges faced by certain companies in a changing economic environment.The performance of these major corporations was closely watched by investors as it provided insights into the overall health of the economy and the resilience of different sectors. Weak corporate earnings could potentially lead to a reevaluation of market expectations and a shift in investor sentiment.
However, not all companies were facing difficulties. JPMorgan's global equity strategy team led by Dubravko Lakos-Bujas remained optimistic about the US economy and stock market. They saw the S&P 500 (^GSPC) hitting 6,500 by the end of 2025, joining other Wall Street strategists who had issued the same target. This represented an approximately 8% increase from current levels.
Lakos-Bujas argued that continued "US exceptionalism," along with ongoing earnings growth and potential interest rate cuts from the Federal Reserve, would act as a tailwind for stocks in the coming year. He emphasized that the US was likely to remain the global growth engine, with a healthy labor market, expanding AI-related capital spending, and promising capital market and deal activity.
Economic Data and Market Trends
Weekly jobless claims continued to show a downward trend, with 213,000 unemployment claims filed in the week ending Nov. 23, down from 215,000 the previous week. This indicated that the labor market remained relatively stable, despite some challenges.The second estimate of third quarter GDP came in unchanged, once again showing the US economy growing at an annualized rate of 2.8%. This stability in GDP provided some reassurance to market participants, but they remained vigilant in monitoring other economic indicators for any signs of change.
Overall, the combination of inflation expectations, corporate earnings, and economic data was shaping the current market trends. Investors were navigating through a complex landscape, trying to make sense of the various factors and their potential impacts on the stock market. As the week progressed, the market would continue to react to new information and developments, adding to the volatility and uncertainty.