Mixed Messages From Markets And The Fed Revolve Around Inflation And Recession

At first blush, stocks and bonds liked the November consumer inflation (CPI) reading on Tuesday, but by the end of the day, the S&P 500 closed up less than 1% after being almost 3% higher in the morning. The 10-year U.S. Treasury yield plunged to 3.4% at one point but rebounded to 3.5% by the close after ending at 3.6% on Monday. The good news was that headline inflation fell to 7.1% year-over-year, down from 7.7% the previous month and below expectations of 7.3%. The less supportive part was the measure of sticky inflation rising to 6.6% from 6.5% year-over-year, meaning that the components of inflation that tend to move slowly are still rising.

In addition, services inflation has continued to rise and hit a new 2022 high of 6.8% year-over-year. Services pricing continues to be supported by a resilient labor market and rapid wage growth. Plus, consumer preferences have shifted back to demanding more services versus goods.