Don't expect CPI to cool enough and don't overreact as well
SPX
The elections did not lead to a Republican sweep, as the party looked set to gain control of the House, but the race for Congress was yet to be determined. The uncertainty reflected in the stock market as all three averages opened lower to start Wednesday's trading session. Fairly broad based selling had the major averages stuck in negative territory and sporting sizable losses at the close which approximated their worst levels of the session. The disconcerting price action in the cryptocurrency market kept buyers sidelined, along with disappointing quarterly results from Walt Disney (
DIS
86.75, -13.15, -13.2%) and a number of growth stocks like Affirm Holdings (
AFRM
12.10, -3.54, -22.6%).Market participants also digested midterm election results yesterday; Some races remain too close to call, yet reports indicate the likely outcome is a split Congress that will lead to a legislative gridlock environment. That would make it near impossible to pass any additional tax hikes or major spending plans, which was the expected outcome going into the election, so there was a sell-the-news component behind yesterday's losses. Market participants are turning their attention from the election to the CPI report due Thursday. Inflation has been one of the sticking points of President Biden's administration with voters. With inflation being the the Federal Reserve's biggest worry, October's consumer price index has the potential to rattle markets on Thursday. The headline number is expected to increase 0.6% M/M and bringing the Y/Y rate down to 8%. By contrast, the CPI Index rose 0.4% M/M and 8.2% Y/Y in September. Core CPI, which strips out the volatile prices of food and energy is expected to rise 0.5% M/M, or 6.5% Y/Y, compared with 0.6% and 6.6% in September. That shows just how far the cost of goods and services has risen above the Fed's target of 2%. In an effort to rein in the rising prices, the central bank has ratcheted up its key policy rate by 375 basis points since March to 3.75%-4.0%, exceeding the previous cycle's peak 2.25%-2.5% in December 2018. In order to get to a sub-3% level of Y/Y inflation by mid-2023, the CPI index will have to moderate to rise no more than a 0.2% M/M increase.
While Fed Chair Powell has indicated the central bank may shift to smaller rate increases, there's no sign of cutting rates. Above all, Powell doesn't want to repeat the Fed's mistake in the 1970s of easing too soon. "It's not hard to overshoot" on Fed policy, Swonk said. "Still, they'd rather overshoot than undershoot."
From the tech side of view, I don't want overreacting on CPI data, and I feel there's no needs for panic here. I will be more expecting the market found support somewhere around 3700ish, and I possibly will long something around that area. Let's see how market goes, have a good trading day!