Goldilocks hopes return to Wall St after benign inflation report
By Lewis Krauskopf
NEW YORK (Reuters) — A benign U.S. inflation report is bolstering the view that the Federal Reserve can bring down consumer prices without hurting the economy, a so-called Goldilocks environment that investors believe will support stocks and bonds.
Both asset classes have ripped higher in November following a months-long wobble, fueled by hopes that the Fed was unlikely to deliver any more of the rate increases that have spurred volatility throughout markets since early last year.
Inflation data released on Tuesday supported the view that a turning point is near: consumer prices were unchanged on a monthly basis for October, the first such reading in more than a year and a softer figure than analysts were expecting.
At the same time, there have been few indications that tighter monetary policy is severely hurting the economy, supporting the view that prices can cool further without damaging growth.
“The broader market has been challenged with this consensus negative view about both a recession and inflation," said Eric Kuby, chief investment officer at North Star Investment Management Corp. «Reality is telling a different story. This does feel like a Goldilocks moment for the entire market.”
The data fueled a powerful rally in stocks and bonds. The S&P 500 was up 1.9% on the day, on track for its biggest one-day rise since late April. The index is up 9% from its October lows. The benchmark 10-year yield, which moves inversely to bond prices, was at its lowest level since late September — having fallen over 50 basis points from a 16-year high set last month.
DOVISH EXPECTATIONS
Fed funds futures traders on Tuesday expected the Fed to forgo any more hikes and enact about 100 basis points of
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