Cool CPI rally: S&P 500 +5.9%, Nasdaq +8.1% on inflation relief

The week of November 7-11 2022 delivered the largest single-week equity gain of the bear market cycle. The catalyst was the Thursday November 10 October CPI release printing 7.7% YoY vs 7.9% expected, with core easing to 6.3% from 6.6%. Core goods turned negative for the first time, a decisive signal that supply-side disinflation was underway. The S&P 500 rallied 5.54% on Thursday alone, the single-session best since April 2020.

Underlying the surprise-driven rally was heavy short positioning. Hedge fund gross exposure had been reduced through October, and cumulative inflows to bear ETFs had hit multi-year highs. The CPI-triggered short squeeze compounded with end-of-year positioning and year-to-date underperformance concerns: fund managers chasing performance piled into the rally, amplifying moves. Semiconductors (+12.4%), ARKK (+17.6%), and Bitcoin (+7.8%) led gains.

The week ended with the S&P 500 at 3993, up 5.9% on the week. Terminal rate expectations had dropped 30 bps from week start. The 10Y yield fell 33 bps. The dollar fell 4.1%, its worst week in years. Gold gained 5.4%. The week established the technical base for the late-2022 and early-2023 rallies, and marked the first week since the cycle began where the "Fed pivot" narrative gained legitimate data support.