Week in Review: November 11, 2022

Markets ended the week higher on encouraging inflation data and renewed hopes that the Federal Reserve will begin to take a less aggressive approach to monetary policy. Equities jumped on the news, with the S&P 500 gaining 5.5% on Thursday, its largest single-day gain since April 2020. Bond markets also rallied, with the 10-Year Treasury yield falling 0.30% to 3.82%, its largest one-day decline since 2009. As a reminder, yields fall when bond prices rise.

Headline consumer inflation rose 0.4% in October, the same pace as September, but 0.2% less than expected. Compared to a year ago, inflation decelerated from 8.2% to 7.7%. The consensus expectation had been 8.0%. Perhaps more importantly, core inflation decelerated after rising during the prior two months. Given the Fed’s focus on core inflation, the slowing was encouraging.

In addition to inflation data, markets were focused on the midterm elections, where it was widely anticipated that Republicans would gain control of the House of Representatives and potentially the Senate. As of this writing, Democrats have retained control of the Senate but are likely to lose control of the House. Such an outcome may bode well for the markets moving forward, as the prevailing thought is that markets generally prefer mixed government, as it results in fewer policy “surprises” and thus more certainty.

Through Friday, 91% of S&P 500 companies had reported earnings. Thus far, 69% have beaten their earnings estimate. According to industry group FactSet, 3Q22 aggregate S&P 500 earnings growth is expected to be 2.2%.