A growing narrative that supply chain bottlenecks and inflation are perhaps starting to peak, suffered a major setback this week as the government’s latest inflation data on Wednesday, showed October experienced the largest jump in consumer prices in 31 years and the fifth straight month of inflation above 5%. US consumer prices rose 6.2% from a year ago, easily surpassing expectations of 5.8%, and the hot inflation data came a day after October US producer prices rose 8.6% while Chinese factory inflation climbed 13.5% year-over-year, the largest increase in 26 years, and added to concerns that the US will likely continue to import inflation.
As a result, bond yields jumped, and the S&P 500 snapped a five-week winning streak, as investors digested what persistent inflation might mean for the Federal Reserve’s monetary policy decisions as well as corporate profit margins. Furthermore, Friday’s consumer sentiment report for November fell to its lowest levels since 2011, as accelerating inflation trends have broadened to include gasoline, rent, and multi-decade highs for food. As a result, a quarter of the survey’s respondents cited declining living standards, while half expect lower real incomes next year. Ultimately however, most of the bullish market narrative remains intact (i.e., strong earnings, favorable seasonality, fiscal and monetary stimulus tailwinds, etc.) and stocks were probably due for a pause. Nonetheless, inflation concerns are ramping and perhaps the once closely monitored misery index, which adds the jobless rate to headline inflation, will return to prominence after being largely shelved when inflation mostly vanished after the 1980s.
Ian Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO