Wall Street rallies as CPI falls to 9-month low

The key inflation reading (CPI) fell below the 8.0% consensus forecast. Consumer prices rose 7.7% from a year earlier, down from 8.2% in September. This is the lowest inflation rate since January. This number pushed the dollar index lower (down 4%) and triggered a quick reappraisal of the dovish Fed scenario in spite of uncertainty about midterm election results. The S&P 500 rose 5.90% week-over-week, bringing its year-to-date performance to -16.22%. The tech-heavy Nasdaq composite jumped 8.10% (-27.62% YTD), boosted by a furious plunge in Treasury yields with the 10-year yield falling to 3.82% from 4.16%. The Dow popped 1,345 points, up 4.15% for the week. The flagship index is now just down 7.13% for the year.

In Europe, Frankfurt and Paris managed to advance by 5.68% (DAX) and 2.78% (CAC) respectively (down 10.45% and 7.81% YTD) though gains were capped as the European Union warned that the economic growth in the eurozone is expected to contract this winter. The MSCI EMU climbed for the sixth week in a row (+4.80% for the week, -12.84% for the year). In the UK, the FTSE edged down 0.23% (-0.90% over the year).

In Asia, Japan’s Nikkei bounced back (up 3.91% week-over-week, down 1.83% YTD). The Shanghai composite gained 0.54% (down 15.18% YTD) amid mixed signals about whether China is set to ease its strict Covid-19 restrictions. Indian stocks were also in the ascendancy with the NIFTY 50 up 1.28% (up 5.74% YTD).

Tech stocks rebound strongly

All the S&P sectors finished the week in positive territory. Information technology led the pack with a double-digit performance. Tech stocks therefore notched their biggest weekly gain (+10.03%, -23.83% year-to-date) since March 2020 on hopes inflation could slow down in the coming months. Shares of Microsoft (MSFT) climbed 11.62% but still lost 26.53% since the beginning of the year. 

Communication services rebounded (+9.23% for the week, -37.77% for the year) from a rout last week amid a surge in Meta Platforms (META +24.49% over the week, -66.40% YTD) as the Facebook parent company announced it would lay off 13% of its workforce, or more than 11,000 employees.

Against this backdrop, the most defensive sectors underperformed the broad market as they would be less attractive if the Federal Reserve reversed course on its monetary policy. Yet they remained among the best performers this year, but far behind energy, the only sector delivering positive returns in 2022 (+2.00% for the week, +69.38% for the year). Utilities gained 1.39% week-over-week (-5.08% YTD). The healthcare and consumer staples sectors were up 1.78% (-5.69% YTD) and 2.38% (-4.82% YTD) respectively. 

Crypto market in the doldrums after the FTX collapse

FTX, the world’s second-largest crypto exchange, has filed for Chapter 11 bankruptcy, tanking major tokens in its wake. BTCUSD lost almost 4,400 points this week, or more than 20%. It’s even worse for ETHUSD (-25%) or Dogecoin (-30%). FTX crashed after the CEO of Binance (largest crypto exchange in the world in terms of daily trading volume), Changpeng Zhao, said his company will liquidate the entirety of its position in FTX Token “due to recent revelations that have come to light.”