U.S. consumer inflation eased to 7.7% over past 12 months

According to official data, inflation in the United States fell to 7.7% in October 2022. Analysts and private investors had expected inflation at 8%. However, inflation data turned out to be better than expected.

The US stock market reacted extremely positively to inflation data for October 2022
– S&P 500 Index (^GSPC) up +5.5%,
– Dow Jones Industrial Average (^DJI) up +3.7%,
– NASDAQ Composite (^IXIC) up +7.4%,
– Russell 2000 (^RUT) up +6.1%

What does it mean? Inflationary risks in the USA are decreasing. It is likely that the US Federal Reserve at the next meeting will not raise the rate to 75 bp, but will behave more cautiously. According to the base case, the rate hike will be 50 basis points. But my opinion is that if they raise it, it will be no more than 0.25%. Let’s look at the incoming data and it will become clearer.

What will happen to the US stock market next: rise or fall?

Keep in mind that the US inflation target is 2%. Therefore, the reaction of the markets looks excessive. Even if the US manages to avoid a recession, it is highly likely that the economy will continue to slow down. For this reason, many technology IT giants are looking to optimize their business to reduce costs. For example, Amazon.com, Inc. (AMZN) plans to get rid of unprofitable business, and Meta Platforms, Inc. (META) reduces the financial burden on the company by laying off 11,000 employees.
After such a rapid growth of the US markets, a correction is inevitable. The only question is at what level the correction will start. The potential for further growth of the US markets is insignificant, and the correction may come in the very near future. Therefore, it is worth buying stocks carefully. We would not recommend buying with all the money yet.