Stocks & Bonds Continue Moving Higher
Stocks traded higher for a second consecutive month after another encouraging inflation report. Data showed the Consumer Price Index (CPI), which measures inflation, increased 0.4% month-over-month during October. While October’s 0.4% reading was a repeat of September’s 0.4%, it was below the market’s 0.6% estimate. Compared to October 2021, the CPI increased 7.8% year-over-year. It was the slowest annual pace of inflation since January 2022 and the fourth consecutive month that the pace of inflation slowed from the prior month. This data was welcomed by market participants and viewed as evidence that price pressures are easing. Although, we would like to point out that a 7.8% inflation rate is still rather high on an absolute basis.
In the bond market, Treasury yields fell as investors hoped a drop in inflation would allow the Federal Reserve to slow its interest rate hikes. Bonds traded higher as interest rates declined, and the Bloomberg U.S. Aggregate Bond Index generated a 3.8% total return for the month of November. Stocks also traded higher, and the S&P 500 followed up October’s 8.1% rally with a 3.6% gain during November. International stocks joined in on the rally and significantly outperformed U.S. equities as the U.S. dollar weakened. Overall, November was a strong month for most asset classes.
A look beyond the S&P 500’s second consecutive positive return includes strengthening market breadth. Breadth measures underlying strength or weakness based on the number of stocks advancing or declining and can be used to analyze market trends. A rising index with strong breadth indicates a large group of stocks participated in the index’s rise, while weak breadth indicates fewer stocks participated. During November, eight out of the eleven S&P 500 sectors outperformed the broad S&P 500 index. In addition, 425 of the S&P 500’s 503 constituents traded higher during November. This data suggests investors are becoming more confident in the path forward. While it is encouraging to see such broad participation, markets will ultimately be looking for incoming economic data to support the latest rally.
Please let us know if you would like to discuss further.
Have a great week,
Dennis P. Barba, Jr.
CEO & Managing Partner
Michael P. Finkelstein, CFA
Partner
Sources:
- The Wall Street Journal
- CNBC
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the authors and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. Past performance is no guarantee of future results. CAR-1222-00332.
