WEEKLY SUMMARY: Stocks surged as inflation eases; Cryptos collapsed
US equities recorded strong gains and bond yields fell as investors celebrated reassuring inflation data. The S&P 500 recorded its best week since June and hit its best intraday level in two months. Growth stocks — tech in particular— benefited the most from falling yields. An index of nonprofitable tech stocks jumped over 15% on Thursday. The event of the week was Thursday morning’s release of the US consumer price data for October. The headline CPI rose 0.4% in October, less than consensus expectations of 0.6% and bringing the yoy increase to 7.7%, the slowest increase since January. The yoy core (less food and energy) reading fell back to 6.3% from a 40-year high of 6.6% in September. U.S. Treasury yields fell sharply in response; the 10-year U.S. Treasury note yield ended Thursday at 3.81%, down from 4.17% at the end of the previous week. Tuesday’s midterm election results and the chance that the Democratic Party might retain some control of Congress may have weighed on markets earlier in the week. The collapse of FTX drove a further decline in Bitcoin and other cryptocurrencies. In the rest of the world, the pan-European STOXX Europe 600 Index ended the week 3.66% higher. Shares in China received a late boost from the surprise drop in U.S. inflation but trailed most other global markets as investors worried about new signs of economic fragility. In Forex, the U.S. dollar had its worst week since March 2020. Gold soared to its highest level in 3 months.
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Thanks to a rally on Friday, US blue chips stocks recorded a 4th consecutive weekly gain despite growing tensions in the Middle East and the dockworkers’ strike at Eastern seaports. Escalating Middle East tensions sent oil prices to their highest level in about a month, benefiting energy shares. The S&P 500 pulled back sharply (-1.38%) on Tuesday, as Iran fired nearly 200 missiles directly at Israel. While many of the missiles were intercepted, there were several hits in the southern and central parts of the country and threats of “more devastating attacks” if Israel responded. Markets stabilized on Wednesday, however, perhaps because worst-case scenarios failed to materialize.