Wow! What a rally yesterday! And it looks like the good times will keep rolling today. S&P 500 futures are up 114 points – almost 3% – in the pre-market. And it’s because this morning’s CPI print came in better than expected.
I was getting the vibe yesterday that there was a bullish undercurrent building as we moved toward today’s CPI and tomorrow’s Fed meeting. As I laid it out in yesterday’s Morning in the Markets, there were three pillars for the bullish case…
One was the successful test of support at 3,920 on the S&P 500.
The second was today’s CPI reading. As I just said, the CPI came in better than expected. And that’s significant because, if you recall, last week’s PPI came in worse than expected. So it was reasonable for the market to expect companies to pass their higher costs on to the consumer, thereby pushing the CPI higher. That didn’t happen, and it was a very welcome surprise.
But the good news from the CPI also gives us a little insight into the third pillar of the bullish case: what the Fed will do and say tomorrow…
The concern for investors yesterday was that Fed Chair Powell might deviate from the script and deliver another 75 basis-point hike instead of the 50-point hike that the market universally expects.
A higher-than-expected 75-point hike would suggest that something had changed, inflation expectations had worsened, and the Fed felt forced to act more aggressively. And the only data point that could have put a little panic into the Fed was this morning’s CPI number…
This morning’s CPI number completely removes the possibility of a surprise 75-point hike. The market is now convinced that the Fed will stick to the script. 50 basis points tomorrow, then two more 25-point hikes early next year, and that will be it (at least for a while). And really, we couldn’t ask for much more than that.
The S&P 500 will blast above its 200-day moving average at the open. Tech stocks are flying higher in the pre-market. And Meta (NASDAQ: META) is among the biggest movers, up better than 6%, as I write. Amazon (NASDAQ: AMZN) is ramping up 5% early, and we will get the latest retail sales data on Thursday.
That’s it for this morning, take care, and I’ll talk to you tomorrow.
The Profit Sector