Cool CPI rally: 7.7% vs 7.9% expected, S&P 500 surges 5.5%

The October 2022 CPI report released November 10 printed 7.7% vs 7.9% expected, the first meaningful downside surprise of the cycle. Core CPI eased to 6.3% from 6.6%, breaking the reacceleration that had troubled markets in September. Core goods inflation turned negative for the first time since mid-2020, and medical services (a stubborn component) declined sharply due to methodology changes. The composition suggested broadening disinflation, not just goods rotation.

The rally was one of the largest single-session equity gains of the 2022-2023 period. The S&P 500 surged 5.54%, its best session since April 2020. Growth stocks dominated: ARKK +14.1%, QQQ +7.49%, semiconductors +10%. Long-duration Treasuries rallied 4%. The dollar fell 2.3%, its worst session in years. Gold gained 3%. Bitcoin rallied 10% despite ongoing FTX implosion.

The session marked a regime shift in inflation expectations. Terminal rate pricing dropped 25 bps in a single day as markets began to price a step-down in the hike pace. The Fed confirmed this at the December 14 meeting with a 50 bp hike (after four consecutive 75 bps). The "Fed pivot" narrative gained traction, though actual cuts would not arrive until March 2025. The November 10 print remains a textbook example of positioning-driven reaction to a modest data surprise: 0.2% below expected triggered a 5.5% rally because short positioning had built up through October.