U.S. CONSUMER PRICE INDEX FALLS TO 7.75%: In October, the U.S. Consumer Price Index rose 0.4%, the same increase as in September.  But the number that everyone loved to see was the 12 month inflation number that came down to 7.75% from the 8.2% it had been a month before, and the fourth straight month of decline.  This drop was more decisive than prior months.  Although we need to see continuing data like this through the winter, investors saw enough to start buying stocks and running up the prices.  The Fed watches the so-called “core CPI” more closely, and that metric came in at 6.3%, down 0.3% from September.  This gave investors optimism that perhaps the downward trend will continue, and that the Fed will have the data it needs to stop being so aggressive in rate raising.

STOCKS RISE ON INFLATION DATA:  U.S. stocks stumbled as the week started, but roared ahead when October’s inflation data was announced. Tech stocks did especially well.  The tech-heavy NASDAQ Composite rose 8.1% for the week.  Bond yields plunged, causing bond values to increase significantly.  The Bloomberg U.S. Aggregate Bond Index rose by 2.24%.  This week, China finally decided to ease its COVID restrictions as well, providing more reason to believe economic activity will be healthy.  Of course elections were held last week as well, but deciphering any moves in the market after Tuesday has been difficult.  It has not moved markets much.

LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  

LARGE CRYPTO PLAYER FTX FILES FOR BANKRUPTCY:  Until last week, FTX Exchange was a leading centralized cryptocurrency exchange, the world’s fourth largest.  It was founded by Sam Bankman-Fried, an MIT graduate.  FTX provided spot market services for over 300 cryptocurrencies and created its own token, FTT/USDT.  FTX’s token plunged in value by more than 82% in the past week.  You may recall that both Tom Brady and Steph Curry pitched FTX. (Larry David actually turned out to have the correct attitude on it.)  Well, last week it experienced a run on assets by investors and could no longer fulfill the requests.  It went to a competitor, Binance, in a last minute attempt to survive, but after doing some due diligence, Binance backed out.  FTX was valued at $32 billion a few months ago.  And just like that, it is in bankruptcy court.  Early in the week, the uncertainty created by this quick turn of events caused some angst in markets overall.  Bitcoin’s value fell by nearly 20% for the week.

IS THIS GOING TO BE LIKE THE 1970s?:  This is the worst inflation in the U.S. since the 1970s and early 1980s.  High inflation persisted for about ten years.  People are worried that this could happen again.  I won’t opine on that likelihood here.  But it made me curious as to how the stock market responded.  Was the stock market in the U.S. depressed for ten years?  Here are the returns of the S&P 500 from 1973 to 1983 as we went through an extended period of inflation and stagflation:

• 1973     -14.66%
• 1974     -26.47%
• 1975      37.20%
• 1976      23.84%
• 1977     -7.18%
• 1978       6.56%
• 1979      18.44%
• 1980      32.42%
• 1981      -4.91%
• 1982      21.55%
• 1983      22.56%

By my calculations, if you invested $100 in 1973, you’d have been down to $62.75 by the end of 1974, but you would have ended up with $234.29 in 1983.

NEW LISTINGS DECREASE AS AVAILABLE HOMES FOR SALE INCREASES:  New listings is a measure of sellers putting homes up for sale.  This measure in October was down 16% from October of a year ago.  Yet inventory of homes available for sale is increasing, up 8.5% from the same month in 2020.  There are a record 1.71 million new housing units under construction.  Supply chain issues have slowed the completion of homes, but these homes will create a sharp increase in completed inventory over the next several months putting pressure on home prices.  

TRAVEL:  A lot of pent up travel plans have occurred this year, and are continuing.  My wife and I were no different.  One of the coolest things we experienced so far this year was The Royal Edinburgh Military Tattoo.  It was the first one after a two-year hiatus, and we loved it.  I just got the email offering me discount tickets to come again as a return customer.  I doubt I will do it two years in a row, but if you have Scotland on your bucket list, attending this event is worth the time and money.

Have a great week!

“He who is not contented with what he has, would not be contented with what he would like to have.” Socrates

“Whoever loves money never has enough: whoever loves wealth is never satisfied with their income.”  Ecclesiastes 5:10

SOURCES:
U.S. CONSUMER PRICE INDEX FALLS TO 7.75%: news.yahoo.com/cpi-drops-half-point-7-160204628.html
LARGE CRYPTO PLAYER FTX FILES FOR BANKRUPTCY: investopedia.com/ftx-exchange AND forbes.com/advisor/investing/cryptocurrency/ftx-declares-bankruptcy/
NEW LISTINGS DECREASE AS AVAILABLE HOMES FOR SALE INCREASES: calculatedrisk.substack.com/p/current-state-of-the-housing-market-c32
IS THIS GOING TO BE LIKE THE 1970s?:  https://www.slickcharts.com/sp500/returns

(c) 2022 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets. 
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States. 
*Bloomberg Barclays U.S. Aggregate: This is a measure of the U.S. bond markets.