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October CPI was a "game changer" supporting equity rally into YE. If inflation is vanquished, will stocks see a vertical rally ala 1982?

October CPI was a "game changer" supporting equity rally into YE.

The October core CPI (released 11/10) came in at a soft +0.27%, below Street consensus of +0.5% and break in trend from the +0.6% seen in August and Sept CPI. As we noted earlier this week, our view is the market would view of soft Oct CPI as a "game changer" and arguably in far greater magnitude than the massive bearish reaction to Aug CPI (stocks down 15%).

  • The S&P 500 rose +5.5%, an eye-popping rally, and so the soft CPI had a seismic impact
  • Many inflationistas skeptically suggested this soft reading is not repeatable
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But 3 drivers were behind this soft CPI, which we view as "repeatable":

Shelter finally showed a meaningful slowing in CPI MoM, as OER (owners equivalent rent, >23% of CPI basket) slowed to +0.6% (+0.7%/+0.8% Aug/Sept) and trending towards market reality of deflation in housingDurable goods finally showing "bullwhip" payback as durables CPI fell to -0.7% MoM (-8.4% annualized) and even used cars finally showed some weakness down-2.4% for the month (but still 15% further to fall)Medical health insurance massively flipped to -4% MoM from 12 consecutive months of +2.4% (since Oct 2021) and given annual adjustment is set to fall 40% over the next 12MIn other wor...

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