Core CPI hits 40-year high at 6.6%, stocks rally in violent reversal

September CPI printed 8.2% YoY on headline (vs. 8.1% expected) and 6.6% YoY on core (vs. 6.5% expected, up from 6.3% prior), with core hitting a 40-year high on October 13 2022. S&P 500 futures plunged roughly 3% in the pre-market on the print. But from the intraday low after the cash open, the S&P 500 rallied over 5% to close up 2.60%, one of the largest intraday reversals in history.

The reversal appeared driven by several factors: extreme short positioning going into the print, year-end hedging unwinds, and a technical bounce from deeply oversold conditions. Some analysts pointed to a UK-specific catalyst (Liz Truss government's gilt crisis subsiding) as a secondary driver of risk appetite return. The session demonstrated that positioning and technicals can override fundamentals for a session even when the fundamentals are unambiguously negative.

The post-CPI rally faded within days. The S&P 500 made new cycle lows on October 13 of 3491 at the intraday bottom before the reversal, and the broader bear market continued into mid-October before finally bottoming at 3577 on October 13 (close) and eventually 3583 on October 12 intraday. The October 13 session is studied as a case study in how extreme positioning can produce counterintuitive responses to bad data.