HIGHLIGHTS:
- Stocks have been range-bound after a sizable rally following a better-than-expected October inflation print.
- Geopolitical risks have stayed at the forefront for investors, ranging from the Russia-Ukraine War to China's recent pandemic worries.
- Fed officials may get a little more wiggle room if inflation trends lower, offering optimism for economic growth going forward.
Financial markets seem to be a mix of crazy, volatile, confused, or maybe a mix of all of the above. Stocks have bounced around current levels over the last few weeks after shares rallied over a better-than-expected inflation number for October. The Consumer Price Index reading for last month came in at 7.7 percent—lower than expectations and half a percent lower than September's print. The S&P 500 vaulted off bear lows before seeing pressure once again at the 4,000 level. A combination of ongoing Federal Reserve policy, economic news, and geopolitical issues have translated into a trading range of about 3,600 to 4,000 for the major US stock gauge.
Recent memory has been chock-full of "once in a lifetime" events—it feels like they are happening on a monthly basis. It would be difficult to find a modern time where there has been more "stuff" going on in terms of geopolitics and the global economy. While there are signals brewing over conflict in the Middle East, the ongoing Russia-Ukraine War retains most of the attention. Support from the US and other coalition forces has helped Ukraine stave off Russia's invasion for the time being, but there doesn't seem to be any resolution in near sight. Russia's economy is under tremendous pressure from its own military expenses and draft-related employment issues, but Western sanctions have also crippled its economy. Economists expect Russia's GDP to fall by 4 percent in 2022. Additionally, protests in the Middle East, specifically in Iran, have heated up alongside tensions between neighboring countries, and the prospects of an Iran nuclear deal continue to dim. Last but not least in the geopolitical spectrum, China adjusted its enduring zero-COVID policy just a few days ago to be less restrictive. Those changes are quickly being put to the test as COVID-19 cases soar in populated areas. Investor concerns rose over the economic fallout from the lockdowns.
US midterm elections—which still haven't been fully finalized—was the hot topic that had market implications ranging from reduced fiscal spending to further attention on domestic supply chains. This may have also pushed more pressure on the Fed to get their policy right and "fix" the US economy. However, continued good news on inflation could give Fed officials a little more wiggle room and help cushion the economy. Financial markets seem to be buying that story, at least for now, as some stability returns.
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