Stock Market Update

The S&P 500 futures are up 30 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 171 points and are trading 0.8% above fair value, and the Dow Jones Industrial Average futures are up 70 points and are trading 0.2% above fair value.

Total CPI was up 0.3% month-over-month in November, as expected, leaving the year-over-year rate up 2.7%, versus 2.6% in October. Core CPI, which excludes food and energy, was up 0.3% month-over month, as expected, leaving the year-over-year rate up 3.3%, unchanged from October.

There are two key takeaways from the report that might help explain the positive reaction to the otherwise concerning headline numbers.

The first is that the report wasn't worse than feared. It was right in-line with expectations; therefore, it did not upset the market's view that the Fed will cut rates another 25-basis points at next week's FOMC meeting. The second key takeaway is in the breakdown of the shelter index (+0.3%), which included the smallest increases for owners' equivalent rent (+0.2%) and the index for rent (+0.2%) since April 2021 and July 2021, respectively.

With the lag effect of shelter costs on CPI computations, assumptions are being made that this variable will continue to factor favorably in future CPI reports and help temper future inflation readings.

Treasury yields moved lower in response. The 10-yr yield, at 4.25% ahead of the report, sits at 4.21% now. The 2-yr yield, at 4.17% before CPI, sits at 4.11%.