CPI Triggered Stock Market Hissy Fit

This morning's CPI report showed inflation continues to moderate. Nevertheless, stock prices initially fell sharply on the news. While the headline CPI was up 0.2% m/m as expected, the core rose 0.3% instead of the expected 0.2%. That minor difference convinced lots of traders that the Fed would cut the federal funds rate (FFR) by 25bps rather than 50bps on September 18.

Nevertheless, the markets still seem to expect two more rate cuts after that one, including a possible 50bps cut, before the end of the year. They might be similarly disappointed by stronger-than-expected economic indicators up ahead, as we've discussed recently. We reckon that the S&P 500 may remain choppy through the November 5 elections before resuming its climb to new record highs, assuming neither political party wins a sweep. In any event, the stock market's hissy fit seemed to be over by mid-day today.