By Senad Karaahmetovic
Markets rallied sharply yesterday, following the consumer price index (CPI) report for October that showed inflation rose at a slower-than-expected pace.
CPI came in at 0.4% on a month-over-month (MoM) basis and 7.7% on a year-over-year (YoY) basis, both below the average analyst estimate. The so-called core CPI came in at 0.3% MoM and 6.3% YoY, again lower than expected.
Inflation should head toward 4% by summer next year, Bank of America's Chief Global Equity Strategists told clients today. While the "inflation shock" is over, they expect CPI to remain sticky going forward and above the range over the past 20 years.
"2022 bear narrative was "inflation shock, rates shock, recession shock"; 2023 bull narrative is "peak CPI, peak Fed, peak yields, peak US dollar"; we say "rent the pivot” as “no recession, no rate cuts"," the strategists added.
The strategists see FAANG and tech underperforming in coming years as the market gets new leadership in the context of commodities, small-cap value, U.S. industrials, EU banks, and EM resources. Going into the year-end, Hartnett expects more "choppy" trading with the S&P 500 ranging between 3700 and 3900.
The week to Wednesday also saw the biggest inflow to bonds in 4 months and the 39th consecutive week of outflows from EU equities.