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Stocks Market Biggest Gains in More Than Two Years, Bond Yields Crash

The market launched higher today, excited about beat-the-street 7.7% inflation. The 10-year bond yields fell the most since 2009.
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CPI Year-Over-Year Percent Change NSA 2022-10 Hooray

Never before have we seen so much excitement over 7.7 percent inflation when the Fed's target is 2.0 percent.

The following charts courtesy of StockCharts.Com tell the story.

S&P 500 +5.54 Percent 

$SPX 2022-11-10

Nasdaq 100 Index +7.49 Percent

$NDX 2022-11-10

ARKK +14.52 Percent

ARKK 2022-11-10

Kathie Wood's Ark fund rallied a whopping 14.52 percent. However those shares are so beat up the rally barely registers. 

Gold +2.33 Percent 

$Gold 2022-11-10

Gold has had three big days in the last five, the other two were flat. The last five days were as better for gold than the last five days for the S&P 500 or Nasdaq 100 index.

Heaven help anyone in leveraged short ETF

SQQQ Ultra Short Nasdaq -22.01 Percent 

SQQQ 2022-11-10

TZA Small Cap 3X Short -18.22 Percent

TZA 2022-11-10

What Happened?

The CPI was unexpectedly good and stocks were beaten up looking for an excuse to rally. Short covering was massive.

I discussed the CPI this morning in CPI Jumps Another 0.4% in October Led by Shelter and Energy

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Bloomberg Econoday Consensus

Economists at Bloomberg Econoday expected a 0.7 percent overall rise, and a 0.5 percent rise excluding food and energy.

The results were much better than expected, but not exactly great, or even good. 

CPI up 0.4 percent is normally not good news. Nor is 7.7 percent year over year. 

  • Actual was 0.4 month over month vs 0.7 expected.
  • Year over year was 7.7 vs 8.0 expected 
  • Core was 0.3 vs 0.5 expected.

 Question of the Day

Q: Did the beat the street numbers put a Fed pivot back in play?
A: No, not really.

Fed Target rate probabilities courtesy of CME FedWatch

Fed Target rate probabilities courtesy of CME FedWatch

The odds of a three-quarter point hike fell from 43.2 percent to 14.6%. That's it. A half-point hike was expected by the Fed both before and after the CPI report, just a little more confidently now. 

Bond Yields Crash

Bond yields crashed the most in over a decade.

  • The yield on the two-year Treasury note fell to 4.32% from 4.63%, the biggest one-day decline since 2008
  • The 10-year yield fell to 3.83% from 4.15%, the biggest one-day drop since 2009. 

US Dollar Index

US Dollar Index 2022-11-10

The US dollar index fell which in isolation is good for stocks and gold but bad for inflation because it makes imports more expensive. 

Q: Has the dollar peaked? 
A: Possible, and perhaps likely

I am still skeptical the Fed gets in all the hikes that it plans. We are marching not towards a soft landing but a recession. 

And a recession rates to be a poor environment for stocks. So don't think today will have a lasting impact. It's highly unlikely the stock market bottom is in.

This post originated at MishTalk.Com.

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