It was déjà vu all over again, as the outcome and market reaction to last week’s Consumer Price Index (CPI) reading resembled the CPI report this time last year. October’s CPI came in below the consensus estimate, prompting Treasury yields across the maturity spectrum to fall. The decline in yields prompted outperformance in parts of the equity market that have struggled with rising interest rates, including smaller capitalizations, the Real Estate sector and value stocks. The day of the CPI report also marked the biggest one-day decline for the U.S. dollar since last October’s CPI print, which led developed international equities to outperform U.S. equities by the most in two months.
While markets responded positively to falling interest rates, economic data continue to suggest growth is softening. In addition to an underwhelming retail sales report, retailer earnings guidance was weak, and the monthly National Association of Home Builders survey fell sharply — ironically, back near last November’s level.
Chart of the Week
The holiday shopping season officially kicks off this week with Black Friday. As is tradition, PNC conducted its 40th annual Christmas Price Index analysis — a different type of CPI — which calculates the cost of gifts outlined in the classic holiday carol, “The 12 Days of Christmas.”
Purchasing the gifts in the song will cost you 2.7% more than last year. The rise is primarily attributed to an increase in the cost of services, similar to what is driving broader U.S. inflation.
For more holiday fun, please visit PNC’s interactive Christmas Price Index website.