A "hot" Oct Core CPI might trigger hawks and Fed pause talk... but instead, focus on positive dynamics into Year-end Array ( [cookie] => 73b082-966254-9e61ec-dd3f29-739107 [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 0 [reason] => Usage under limits [method] => ) 1 and can accesss 1

VIDEO: Oct CPI released Wed is the most important macroeconomic data point this week.  There is a possibility used car prices pressure higher Oct CPI, but we see this as a transitory effect (duration: 4:40).

Equities took a healthy breather Tuesday with S&P 500 down modestly and small-caps (IWM 0.09% ) down nearly 2%. In our view, the positive outlook remains intact. In the short term, markets will focus on Oct CPI, which is released Wed am:

• The bulk of the macroeconomic data comes after Wed, as highlighted below:
  – 11/12 Tue 6:00 AM ET: Oct Small Business Optimism Survey    93.7 vs 92.0e
  – 11/12 Tue 11:00 AM ET: Oct NY Fed 1yr Inf Exp    2.87%   
  – 11/13 Wed 8:30 AM ET: Oct Core CPI MoM    0.28%e
  – 11/14 Thu 8:30 AM ET: Oct Core PPI MoM    0.24%e
  – 11/14 Thu 3:00 PM ET: Powell Speaks on Economic Outlook in Dallas
  – 11/15 Fri 8:30 AM ET: Oct Retail Sales Advance MoM    0.3%e
  – 11/15 Fri 8:30 AM ET: Nov Empire Manufacturing Survey    0.0e
• For Wed CPI, the Street is looking for +0.30% MoM, which is basically flat with last month’s (Sep) +0.30%. The YoY would hold steady at 3.3%. If there is any “upside” surprise in this Oct figure, it likely stems from used car prices.
• As highlighted below, CPI used cars tend to lag Manheim Used Car Price Index by two months. The Manheim index is wholesale prices, so it may simply reflect the lag between retail and wholesale. Two months ago, Manheim prices spiked. This seems anomalous, since the trend in used car prices is lower. And is still lower. So if there is a spike, we expect markets to view this as largely transitory.
• Moreover, the NY Fed Consumer Survey results (released today) show that 1-year inflation expectations fell to 2.87%, below consensus of 2.97% and the lowest reading since before the pandemic. So consumers are not really expecting higher inflation, and arguably that matters as much to the inflation outlook as the CPI report.
• Another thing to keep in mind is that the YoY Core inflation is still largely distorted by the excess impact from housing and auto insurance:
  – Core CPI excess inflation +1.31% (vs 20-yr)
  – Housing excess contribution: +0.94%
  – Auto insurance excess contr: +0.42%
  – Combined: +1.37% of the +1.31%
• So, basically, Core CPI YoY would be largely back to trend without these components. That is what Fed Chair Powell noted in the FOMC press conference last week as well.
• But a “hot” CPI report could get investors bearish again. And many pundits might argue the Fed should pause. This is what Fed Governor Kashkari stated today. But we think these “hawkish” takes have been habitual in 2024.
• Recall, for much of 2024, the hawks/bears stuck to a negative thesis:
  – Recession “guaranteed” in 2024
  – War on inflation “breaks” something eventually
  – Sahm ruled triggered = recession!
  – First Fed cut leads to “stock declines”
  – Market will not “rally on Trump” win
• As is obvious, none of the above transpired. Instead, we still see positive supports into year-end:
  – 3Q EPS resilient despite falling inflation
  – Fed dovish and Fed cuts boost economy
  – Election uncertainty = cash sidelined
  – Valuations still reasonable

Bottom line: Stay on target into year-end

Thus, we see positive supports for equities into year-end. As we noted earlier this week:

• the median gain post-election AND
• given no recession AND markets declined
• is 7%, implying S&P 500 6,300 or so

That said, we see more upside for other groups. This holds whether looking at 2016, or whether thinking of a dovish Fed. The drivers are:

• de-regulation
• drop in cost of capital for businesses
• general “animal spirits” given Republican White House and Senate

This favors the following groups:

• Small-caps: IWM 0.09%  IJR -0.06%
• Cyclicals: XLF -0.18%  KRE -0.69%  XLI -0.66%
• Bitcoin: BTC MSTR -3.43%  SMLR 3.71%

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Key incoming data November:

• 11/1 8:30 AM ET: Oct Non-Farm Payrolls Tame
• 11/1 9:45 AM ET: Oct F S&P Global Manufacturing PMI Tame
• 11/1 10:00 AM ET: Oct ISM Manufacturing PMI Tame
• 11/4 10:00 AM ET: Sep F Durable Goods Orders Tame
• 11/5: US Presidential Election 2024
• 11/5 8:30 AM ET: Sep Trade Balance Tame
• 11/5 9:45 AM ET: Oct F S&P Global Services PMI Tame
• 11/5 10:00 AM ET: Oct ISM Services PMI Mixed
• 11/7 8:30 AM ET: 3Q P Non-Farm Productivity Tame
• 11/7 8:30 AM ET: 3Q P Unit Labor Costs Mixed
• 11/7 9:00 AM ET: Sep F Manheim Used vehicle index Tame
• 11/7 2:00 PM ET: Nov FOMC Decision Dovish
• 11/8 10:00 AM ET: Nov P U. Mich. Sentiment and Inflation Expectation Tame
• 11/12 6:00 AM ET: Oct Small Business Optimism Survey Tame
• 11/12 11:00 AM ET: Oct NY Fed 1yr Inf Exp Tame
• 11/13 8:30 AM ET: Oct CPI
• 11/14 8:30 AM ET: Oct PPI
• 11/15 8:30 AM ET: Oct Retail Sales Data
• 11/15 8:30 AM ET: Nov Empire Manufacturing Survey
• 11/18 10:00 AM ET: Nov NAHB Housing Market Index
• 11/18 4:00 PM ET: Sep Net TIC Flows
• 11/19 9:00 AM ET: Oct M Manheim Used vehicle index
• 11/21 8:30 AM ET: Nov Philly Fed Business Outlook
• 11/21 10:00 AM ET: Oct Existing Home Sales
• 11/22 9:45 AM ET: Nov P S&P Global Manufacturing PMI
• 11/22 9:45 AM ET: Nov P S&P Global Services PMI
• 11/22 10:00 AM ET: Nov F U. Mich. Sentiment and Inflation Expectation
• 11/25 8:30 AM ET: Oct Chicago Fed Nat Activity Index
• 11/25 10:30 AM ET: Nov Dallas Fed Manuf. Activity Survey
• 11/26 9:00 AM ET: Sep S&P CoreLogic CS home price
• 11/26 10:00 AM ET: Nov Conference Board Consumer Confidence
• 11/26 10:00 AM ET: Oct New Home Sales
• 11/26 2:00 PM ET: Nov FOMC Meeting Minutes
• 11/27 8:30 AM ET: Oct PCE Deflator
• 11/27 8:30 AM ET: 3Q S 2024 GDP
• 11/27 10:00 AM ET: Oct P Durable Goods Orders

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: