The November 2022 Consumer Price Index numbers are coming out on December 13th. While a handful of other reports are saying that inflation has peaked and moving in the right direction, the housing market may dampen the results.
Shelter is one of the biggest parts of consumers’ budgets and accounts for a third of the CPI calculation. October’s reading for shelter jumped by 0.8%. That was the biggest monthly gain in over 30 years. The shelter category is up 6.9% over the last year. When the housing market cools, this category will also ease, but it may be months away.
We will see what happens this week with the shelter reading, but the likelihood is that it will take months for that category to come down. But why? There is a lag in the data that will take months before it affects CPI, but when it hits, we could see a rapid decline in the CPI number.
Shelter includes home prices as well as rent from landlords. Leases typically roll over every 12 months, which means it takes extra time before new data is factored in. That ultimately delays the increase/decrease the Shelter category has on the CPI.
Here are some of the core categories of inflation, showing year-over-year price changes. Based on this list you can see why so many get annoyed when the Fed talks about inflation, excluding food and energy, and yet, what impacts consumers more day-to-day?
Speaking of the CPI report, let’s get to the news items this week that can impact the markets.
Monday – 12 pm EST – Raphael Bostic Speaks – In this hyper-news-driven market, the speech from the Fed member could bump the markets in the early afternoon.
Tuesday – 8:30 am EST – CPI – The November Consumer Price Index readings will be released. The consensus is to see the CPI (Excluding Food and Energy) year-over-year drop from 6.3% to 6.1%. The overall CPI number is expected to drop from 7.7% to 7.3%. The Fed has already said they are open to a 50 basis point increase instead of the 75 point increases of late, but could a hotter-than-expected reading change their minds?
Wednesday – 2:00 pm EST – FOMC Announcement & Press Conference – The Fed is expected to announce a 50 basis point increase for December. The Fed signaled a terminal rate of 5%, which could be reached in early 2023 with a 50-point increase in December, followed by two more 25-bp hikes in 2023. The Fed could rock the markets lower if they announce plans for raising the terminal rate higher.
Thursday – 8:30 am EST – Jobless Claims – The market is expecting to see a reading of 230k, moving the 4-week moving average up to 230k.
Thursday – 8:30 am EST – Philadelphia Fed Manufacturing Index – Five of the last six reports have shown manufacturing is in a contraction phase. This reading is supposed to improve from the last report, going from -19.4 to -9.9, but anything below 0 is still considered a contraction.
Thursday – 8:30 am EST – Retail Sales – The market is expecting an essentially flat ready month-over-month. October’s sales numbers were higher than expected and part of that is attributed to early holiday sales, which took away from November.
Thursday – 9:15 am EST – Industrial Production – Output is expected to fall slightly, while production is supposed to increase slightly, but mostly a flat reading overall.
Friday – 9:45 am EST – PMI Composite Flash – The composite Purchasing Managers’ Index (PMI) is expected to show contraction, but at a slower pace than the previous month.
Friday – Quadruple Witching – We have the simultaneous expiration of index futures, index futures options, stock options, and single stock futures. This day can generate significant volatility and volume as investors clear their books of expiring positions. The last hour of the day is typically the most volatile. There is no statistical significance to this day in terms of market performance. Results are mixed going back to 1982.
As far as the market, the SPY (S&P 500 ETF) broke down below the wedge and closed lower on Friday, but it’s still sitting atop a line of resistance. When a stock breaks a wedge, there’s a good chance the stock will continue in the direction of the break. If it does break down, look for support at the 50-day moving average, just above $380.
I don’t have a specific trade for today. It’s going to be a news-filled week before trading volume dries up next week. Let’s see how the market opens and see if we can find trades later in the week.
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