Week In Review
It was the most anticipated inflation report since the last inflation report, and it didn't disappoint. Perhaps the most important number released each month that has the ability to move the stock market by massive amounts is the monthly CPI report released by the Bureau of Labor Statistics. Towards the end of the second week of each month at 7:30 AM Central, we wait with baited breath. It seems a hard data point to predict, as most of the time this year, we've been disappointed with the results.
This week was different. Year-over-year, inflation fell to 7.7%, which in a vacuum is not great, but it was lower than the consensus expectation of 7.9%. For some added context, the inflation report released 4 months ago for June was 9.1%. The Fed was still cautious with its worded response to the data, saying we still have a long way to go. And to that point, when you look at the individual components that make up the CPI "basket" of goods and services, you can find data that points to some pain that most Americans living paycheck-to-paycheck still feel. The price of breakfast cereal is up 13.7% in the last year. Eggs are up 43%. When you look at the CPI number without any additional context, 7.7% is not great. But it is clearly a step in the right direction...
...and speaking of steps in the right direction - what a week in the markets. The S&P 500 closed up 5.9% for the week. The story of the week was the market's reaction to the October CPI report on Thursday. The S&P was up 5.54% on Thursday. Let's talk about that for a minute.
Since 1950, there have been 18,342 trading days in the stock market. Just 14 of those days have been better than this Thursday. Fourteen. We just had the fifteenth best day in the last 72 years.
While extremely rare, these are the days that can absolutely wreck you if you had been sitting on the sidelines for whatever reason ("tactical" investment strategy, midterm elections, fear of bear market, pick your reason...).
We did some research on days that had greater than 5% returns in the S&P 500 since 1950. Prior to this week, there were 22 days that the S&P gained more than 5%. Here are some interesting tidbits...
- Only 2 times following a 5% day was the S&P negative one year later. 91% of the time, returns were positive.
- On average, the return for the S&P one year following a >5% day was 28%.
- On average, the return for the S&P two years following a >5% day was 43%.
- Daily returns of >5% tend to happen in midst of brutal bear markets (6 occurred in 2008, 5 in 2020, 3 between 2001-02)