Slight Decline In CPI Boosts Market… Slightly


Simpler Trading Team

Jan 12th 2023  .  4 min read

Don’t expect any sudden central bank announcement that inflation has been defeated and benchmark interest rates will be lowered.

Data showing a cooling trend for inflation was released Thursday morning only to be greeted with a muted response from the stock market.

Overall inflation declined, based on the report, but inflated costs for consumers nationwide remain at near 40-year highs.

Options with Henry Gambell
Futures with Raghee Horner

Minimal decline in CPI won’t sway Fed

How big was the decline in inflation according to the latest U.S. Consumer Price Index (CPI) report?

Minimal, as in .1% in December. Inflation overall for consumers was 6.5% annually, down from 7.1% in November for the annual assessment.

Neither statistic is likely to budge the central bank from continuing hawkish monetary policies. The Federal Reserve (Fed) plans to continue raising benchmark interest rates as long as inflation is above its 2% target for core inflation. That number, which measures rising costs, less food, energy, and trade services, rose again in the latest report.

Core inflation rose .3% in December, after rising .2% in November. Traders should expect more of the same from the Fed through 2023, or until the Fed hits that 2% core inflation target which rose by 5.7% year-over-year in December.

The response to the CPI data among market participants sent equities higher across the board Thursday, but the overall reaction was muted.

In the market today, the Dow notched higher to 34,189.97 points to improve by .64% (adding 216.6 points on the day). The Nasdaq matched the move, rising to 11,001.10 points for a .64% increase while the S&P 500 ticked up by .34% to 3,983.17 points.

Not a stellar jump after positive CPI news, but an uptick still.

“The last few numbers came in a little bit better than expected – slightly – but that’s all it takes,” said Bruce Marshall, Senior Director of Options and Income Trading at Simpler Trading.

Avoid ‘train’ wreck with chaotic stock market

The latest CPI report increases odds for a stock market move higher with inflation declining, even if the dip is minimal.

But months of a choppy, uncertain market don’t make traders less uneasy with one “slightly higher” economic report.

The stock market has exhibited periods of price movement straight up, straight down, and back again. This chaos has held within a sideways range.

“The market has been really, really crazy as we know,” Bruce said. “It’s just really hard to trade because it’s all over the place.”

Bruce cautioned that once the market pushes higher into the next level of resistance, near 4,200 on the S&P 500, anything could happen – like recent past rallies that are followed by a sharp drop.

He pointed out upcoming events that include earnings season beginning Friday with key banks reporting, the University of Michigan (UMich) Consumer Sentiment Index report also on Friday, the U.S. Producer Price Index (PPI) report next Wednesday, followed by the next Federal Open Market Committee (FOMC) meeting in early February.

Despite this latest CPI report, the Fed has not flinched on its aggressive stance toward curbing inflation.

While he looks for bullish trade opportunities during the current market uptick, Bruce is still flat in capital exposure and light on trades, taking each market session day by day.

“There’s just no reason to stand on the train tracks and play if you know there’s a train coming,” Bruce said.

“A whole lot is going to be going on in the next couple of weeks,” Bruce said. “That could push us higher and higher or torpedo us and we’re going down lower.”

Learn ‘slow and steady’ for trading account growth

Traders who want to know more about Bruce and his trading strategies can find him trading live during market hours.

Bruce noted that his dedicated account – part of his training program – is up 2.5% in 11 days so far this year.

“Slow and steady – singles and doubles – that’s the way I do it,” Bruce said.

He has a combined 34 years of professional money management and trading experience. Bruce is a leading trader who presents trading setups designed to track consistent income. To dive deeper into market conditions, learn more from Bruce.