US consumer inflation data for November was more positive than expected, lifting the stock market on Tuesday.
The US Department of Labor said November’s consumer price index, which measures a wide basket of goods and services, rose 0.1% from October and 7.1% year-on-year.
Traders expect an easing of the Fed’s monetary tightening, which will help avoid a “hard landing” of the economy in 2023. The report was in many ways the most ideal result for the stock market, as it is now assumed that the central bank may slow down the pace of rate hikes earlier than expected. This, in turn, reduces the likelihood of a sharp economic downturn in 2023 and possibly makes the impending recession less severe, which is encouraging for investors.
On Wednesday, the Fed is expected to announce a 50 basis point rate hike, the fifth major rate hike this year. Traders are already viewing the interest rate decision as a welcome “holiday gift”.
However, some analysts warn that it is too early to rejoice. In particular, Mike Wilson of Morgan Stanley (NYSE:MS) stressed that investors should look away from inflation data and the Fed’s rate hike and think that stocks will suffer next year due to downward revisions in earnings.
“We believe that costs will remain high and prices will fall, which will create negative operating leverage and a very difficult environment for corporate earnings,” Wilson said.